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JPMORGAN: Should Management be Held Accountable for the Actions of Individual Employees?
Thursday, Mar. 21, 2013
Friday, the Permanent Subcommittee on Investigations held hearings on JPMorgan's $6.2 billion trading debacle from earlier this year. According to the 307-page Senate report released Thursday, traders in JPMorgan's chief investment office hid underperforming derivatives; routinely exceeded bank mandated risk limits; and manipulated the valuation of unprofitable investments to minimize losses. In addition, the report found that JPMorgan used intimidation and deception to mislead regulators. Executives, including the person who managed the London operation, passed the buck down to lower level employees, claiming that attempts to reduce risky investments were undermined by individual traders undervaluing existing positions to minimize losses. Regulators at the Office of the Controller of the Currency were also criticized for not identifying the losses sooner, as well as for not being aware of JPMorgan's $156 billion high-risk derivatives portfolio. How should blame be allocated for the mishap? Do senior executives get a free pass for actions of subordinates hidden from them? Or does the buck stop at the top? Should the boss always bear the ultimate blame?
Kirk: We can't let senior executives off the hook when things go awry in their operations. It just leads to convoluted games of deniability. Besides, senior executives should know about anything important in their operations. One of their key responsibilities is to create effective and transparent information systems to ensure things cannot be hidden. Heads should always roll at the top.
Patrick: I'd have to agree: JPMorgan's management has failed to maintain a company culture that values accountability, and executives should bear the blame. While management should be held accountable, let's not forget that the "London Whale" incident also represents a failure on the part of regulators. Banks are certainly not justified in bullying regulators, but regulators don't get a free pass just because they face resistance.
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