Whale harpoons JP Morgan

Six billion dollars lost.... Why?

It all began, in April 2013, 2013, with JP Morgan's ebullient CEO Jamie Dimon dismissing the stories that hedge funds had reason to bet against JPM's 'London Whale' as a “tempest in a teapot.”  There can't be any doubt he believed what he said.

By 11 May, Dimon was calling a press conference to explain a $2 billion trading loss.  Again no doubt he believed it.

Two months later, its been announced that the losses are nearly $6 billion.  He must be hoping it is true.

Something is clearly preventing Dimon and his board from knowing what is really going on within the business.

As Justin King said, you can't make good decisions without good information.  Garbage information usually means garbage decisions however talented the board and management.

So here are some $64 billion questions for the Board.

• How much more of the information getting to JPM's board is garbage?  
• Which bits might be unreliable?
• How much information might be missing - and in what areas?
• How can we reliably find out?
• What might be causing us to have an information problem? 
• And while we are about it, do we fully understand everything that is going on at JPM? 

No-one should think this is just a JP Morgan problem.  'Roads to Ruin' demonstrates how defective information flows can bring down empires - it's a frequent cause of corporate disasters.  All boards should be asking themselves questions like these.

Anthony Fitzsimmons
Reputability
London
www.reputability.co.uk

Lessons from Barclays

According to Grant Woods, an FT letter-writer:

"The culture at Barclays, [in 2006/7 when he worked there] discouraged staff from raising concerns; in some instances, their loyalty and commitment were questioned, should they do so. There was also the unsaid threat that it could adversely affect any potential bonus or, worse, undermine their job security."

This describes a classic example of incentives, both cultural and financial, blocking the flow of important information to the top.  Underlying it is a failure of leadership on ethos and culture.  Incentives and failures like these are almost impossible for boards to uncover without outside help - the more so in large complex organisations. 

This single letter illustrates four of the seven key risks highlighted in 'Roads to Ruin' as a major cause of destruction of apparently solid businesses.  And it left NEDs without key infomation they needed to be able to supervise the business effectively.

No-one can make good decisions based on information fit for garbage.  Garbage in, garbage out applies as much in the best boardrooms as it does to computers.   Making decisions while living in a rose-tinted bubble is dangerous.

Anthony Fitzsimmons
Reputability, London
www.reputability.co.uk