Commentary—A Dimon in the Rough: Apologetic Crisis Management at JPMorgan Chase

Abstract

When companies are caught in a crisis, the need to deliver a defense in order to salvage their damaged reputation is an ongoing challenge. Drawing from actional legitimacy and apologia theory, this article examines corporate use of crisis communication through a case study surrounding Jamie Dimon, CEO at JPMorgan Chase. Dimon found himself in a crisis from 2012 to 2013 when a so-called “London Whale” made a series of trades that cost the company $6 billion U. S. Dollars, and raised serious questions over Dimon’s judgment and ability to lead JPMorgan Chase. In particular, we argue that the restoration of actional legitimacy centers around strategies of mortification, (corrective) action, justification, and authorization.

Keywords

crisis management corporate apologia actional legitimation financial public relations

In November 2011, 38-year-old JPMorgan Chase trader Bruno Iksil began a series of derivative actions in the credit default swap market. In this type of exchange, a trader makes a bet that a default (or other significant negative) credit event will occur, and when it does, the trader will receive a large payoff. Iksil’s efforts, in effect, made a wager that the international credit markets, as part of the ongoing global economy, would continue to strengthen; in effect, he “shorted” the market (Ahmed, 2012b).

For a number of months, this position was successful and had the potential to result in a huge windfall for JPMorgan Chase. However, in the world of hedge fund managers, a handful of operators led by Boaz Weinstein of Saba Capital Management noticed an anomaly in a corner of the market—it did not match the rest of the market trends. This led to the conclusion there was a “London Whale” working for JPMorgan Chase, causing Weinstein and others to take the opposite position (Ahmed, 2012a). This tack did not pay off initially, and soon the hedge funds at Weinstein were down 20% or more. In April and May 2012 as the European debt crisis grew amid concerns of default by Greece and Spain, the positions held by Iksil were reversed, and losses at JPMorgan Chase began to mount—expected to be booked at $2 billion U. S. Dollars (USD; Ahmed, 2012b).

As news broke, Jamie Dimon, CEO of JPMorgan Chase, appeared on NBC’s Meet the Press. On May 13, 2012, he acknowledged the trades were a “mistake” and not typical of how JPMorgan Chase normally conducts its business (Schwartz & Silver-Greenberg, 2012). The next day, JPMorgan Chase announced Ina Drew, JPMorgan Chase’s Chief Investment Officer and one of the most prominent women on Wall Street, was to be replaced, along with three other traders (Schwartz & Silver-Greenberg, 2012).

The outcry against JPMorgan Chase was immediate. Critics saw the loss as another example of the failure of legislators and regulators to develop and enforce Dodd Frank regulations on banks that were “too big to fail.” The primary allegation against the banking giant was encapsulated by Mark Williams, a faculty member at Boston University and former bank examiner: “Essentially, JPMorgan has been operating a hedge fund with federal[ly] insured deposits within a bank” (Silver-Greenberg & Craig, 2012). In other words, JPMorgan Chase was able to engage in extremely risky investments with almost no institutional risk. By August, the estimates grew and losses were expected to top $7 billion USD (Protess & Silver-Greenberg, 2013c).

In effect, JPMorgan Chase was caught in a crisis that necessitated the use of an apologia and related strategies to reaffirm and repair its social legitimacy. Such an approach acknowledges crises are at root managerial and operational, but also asserts that they have a communicative aspect to them—as company officials use interviews, news releases, social media, and other communication vehicles in order to respond to situational exigencies as they work to meet social expectations (Bitzer, 1968).

Because of this, this essay examines the legitimation efforts led by Jamie Dimon, CEO at JPMorgan Chase, during its so-called “London Whale” crisis in 2012-2013. This was a crisis that cost the company financially, led to congressional hearings, and raised serious questions over Dimon’s leadership and enterprise-wide risk management controls. As such, this essay will illustrate why corporations must recognize the critical role actional legitimation efforts play in their day-to-day operations. In so doing, this analysis argues crisis management efforts by companies with high profile chief executives require such organizations to maintain both their managerial and institutional legitimacy by regularly using reframing techniques. In particular, we argue that stakeholders’ expectations in crises require actional legitimation repair efforts that feature mortification, action, justification, and authorization.

To support this thesis, this essay first reviews the different components in the maintenance of organizational legitimacy; second, it reviews the difficult situation in which Dimon and JPMorgan Chase found it necessary to navigate; third, it analyzes Dimon’s institutional and personal communication efforts to meet stakeholder expectations; and finally, it draws a number of conclusions with regard to the ethics of JPMorgan Chase’s communication management of the crisis.

Bad Performances and Actional Relegitimation

Legitimation Requirements of the Modern Organization

Given their size, organizations have to take great pains to use masks in an effort to appear socially legitimate (Sennett, 1980). Social legitimacy theory addresses the degree to which corporate activities demonstrate congruence with the values of the larger social system in which they operate (Dowling & Pfeffer, 1975). Corporate activities are legitimate, then, only to the extent that they reflect public values. Hearit (1995) argues that a company’s claim to legitimacy broadly defined is rooted on two basic criteria: by competence in which it demonstrates its utility and responsibility to community whereby it acts in the public interest (Johnston, 2016). Given that legitimacy is bestowed by consumers and other stakeholders, companies expend considerable resources to establish and maintain their social legitimacy.

Organizations that would be legitimate have three strategies: (a) they can adapt their business practices to be more in line with social values, (b) they can work to change what it means to be legitimate, or (c) they can identify with key symbols and strategies that are seen to be legitimate (Dowling & Pfeffer, 1975). Arguing that not all crises are existential, Boyd (2000) stepped away from a binary approach to propose the concept of “actional legitimacy” which assesses organizational efforts to “gain approval from critical publics for a specific corporate policy or activity” (p. 349).

Legitimation scholars detailed the many communication strategies organizations take to identify with key symbols and strategies. Research has shown the strategies to be well-varied: the use of valuation whereby companies align with and praise public values (Bostdorff & Vibbert, 1994); naturalization which features efforts to make it appear that a company’s success is “inevitable” (Vaara & Monin, 2010); regulation whereby a company communicates its adherence to law, statute, and regulation; authorization which references third party authorities and experts to vouch for an organization (Vaara & Monin, 2010; Zimmerman & Zeitz, 2002); justification which provides explanations about the social value of an company’s work that serves as sense-making frames for future actions (Francesconi, 1982; Suchman, 1995); and moralization whereby a company describes the greater good it provides (Vaara & Monin, 2010).

In actional legitimation crises in which organizations are to blame, they must of necessity respond with an apologia. An apologia is “not an apology (although it may contain one), but a defense that seeks to present a compelling, counter description of organizational actions” (Hearit, 1994, p. 115). “Successful” apologiae are, in effect, good narratives that are credible due to their plausible counter-description of the “facts” of the case (e.g., Hearit, 2001, 2018). To complete this counter-narrative, we argue that when caught in a crisis companies must take four particular steps to repair their actional legitimacy. First, companies must engage in mortification which demonstrates they accept responsibility for what precipitated the crisis (Hearit, 2006). Second, they must take corrective action by adapting their institutional policies and procedures to conform to expectations of legitimacy (Dowling & Pfeffer, 1975; Zimmerman & Zeitz, 2002). Third, they then use justification to account for the particulars of their behavior—in an effort to meet stakeholders’ expectations with regard to knowing what caused the crisis (Francesconi, 1982). Finally, they demonstrate authorization whereby they appropriate the legitimacy of others either by governmental regulation (or the conformance of its behavior to ward off the pending threat of regulation) or through third party endorsements (Dowling & Pfeffer, 1975; Vaara & Monin, 2010). These third-party endorsements can take many forms, including approving statements by watchdog groups, journalists, auxiliary organizations (e.g., CalPERS), or even a company’s own board of directors (Zimmerman & Zeitz, 2002).

Jamie Dimon and the London Whale: JPMorgan Chase’s Actional Legitimation Crisis

As news about the depth of the trading losses, Dimon and JPMorgan Chase were faced with multiple legitimation challenges. First, there was a legitimation crisis with regard to the public at large. This was due to a growing perception that the company took private risks with public money—and lost big. Additionally, there were concerns that the company’s actions would result in more regulation. Dimon, testifying before the Senate Banking Committee on June 13, 2012 and before a House Financial Services Committee on June 19, 2012 had to confront the conventional wisdom that Congress and regulators needed to tighten its oversight of large banks. He asserted that even with the losses, the bank was strong and not at any risk of failing (Goldfarb, 2012). Dimon apologized for the position the company took and sought assured members of Congress that it was an “isolated” incident (Silver-Greenberg & Craig, 2012). His testimony did not put the public at ease, as by July The New York Times reported total losses were projected to reach $7 billion to $9 billion USD (Silver-Greenberg, 2012).

Second, there was a legitimation crisis of leadership. Dimon, his team, and JPMorgan Chase’s risk management procedures were viewed to be insufficient. JPMorgan Chase’s board subsequently asserted its position as a check on top management and cut Dimon’s annual compensation in half by cutting his bonus—thus affirming its actional legitimacy (Silver-Greenberg, 2013a). Fortunately for him, an internal report issued by senior executive Michael Cavanagh ensnared top executives in its criticism, but not Dimon (Silver-Greenberg, 2013a).

This crisis of leadership reached a crescendo in the spring of 2013. John Liu, the New York City comptroller who invested $500 million USD in JPMorgan Chase shares with public funds, put the spotlight on Dimon by supporting a shareholder proposal to split JPMorgan’s chief executive and chairman roles, both of which Dimon held (Protess & Silver-Greenberg, 2013a). While an earlier version of this measure received only 40% backing in 2012, it was expected to gain new support in the wake of the London Whale trading disaster. Liu’s efforts gained further backing when CalPERS, the enormous California public pension plan, announced it planned to support the spilt (De La Merced, 2013).

As shareholder calls for an unrepentant Dimon’s role to be split intensified, JPMorgan Chase’s board said it would stand behind Dimon (Craig & Silver-Greenberg, 2013a). As a result, the board and Dimon had to work swiftly in order to avoid “a major potential embarrassment” (Craig & Silver-Greenberg, 2013a). In early April 2013, the board and Dimon sat down with large shareholders. The campaigning, according to shareholders, was unusually proactive and reflected the growing worries within the bank that investors were dissatisfied with management in light of the continuing fallout from the trading debacle (Craig & Silver-Greenberg, 2013a). A split in the positions of CEO and chairman would indicate shareholders had lost faith in Dimon, even though he successfully steered the bank through the 2008 financial crisis and had reported positive earnings for the past year despite the London whale losses.

The intense public and private campaign worked. On May 21, stockholders voted to keep Dimon in both roles. Liu, who cosponsored the bill to split the vote said of the losing vote, “I don’t think this is a setback because it put a spotlight on the issue and the clock is now ticking on director reform” (Silver-Greenberg & Craig, 2013).

On the Reestablishment of Legitimacy: Jamie Dimon and JPMorgan Chase’s Crisis Communication Efforts

Particularly noteworthy in this case is the fact that there were two crises occurring simultaneously—JPMorgan Chase’s London Whale crisis and Jamie Dimon’s managerial leadership crisis. While they occurred simultaneously, each had slightly different interests and outcomes; as such, we will address and analyze them separately.

Managing the JPMorgan Chase London Whale Crisis

Like many crisis managers, JP Morgan Chase’s first attempts to manage the crisis involved a strategy of minimization. In minimization, apologists attempt to deny a “real” crisis is at hand by lessening the importance of a revelation (Benoit, 2014). CEO Dimon took this tact in a conference call in April 2013 with investors. In it, he minimized the nature of the revelations surrounding the London Whale by describing them as “a tempest in a teapot” (Grandel, 2013). It is important to note that at this stage the losses were only believed to be close to $2 billion USD and not the full $6 billion to $7 billion USD.

Later that spring, however, the amount of the losses began to grow in company estimates and the bank recognized the need for a full response to its legitimacy crisis was warranted: one that featured mortification, action, justification, and authorization.

Mortification

As it became evident that a strategy of minimization to meet actional legitimacy concerns would not meet public expectations—JPMorgan Chase found it necessary to change course due to the growing consensus that the firm had used public money to take enormous financial risks (Boyd, 2000). On Meet the Press in May 2012, Dimon was forced to admit the full extent of the bad trades. He then took responsibility for the crisis on behalf of the company, using mortification whereby guilt is named and responsibility is accepted—though he was careful not to assume personal responsibility. Speaking for the bank, Dimon acknowledged his “tempest in a teapot” comments were made before the full depth of the losses were understood:

I was dead wrong when I said that. I obviously didn’t know, ‘cause I never would have said that. And one of the reasons we came public was because we wanted to say, “You know what? We told you something that was completely wrong a mere four weeks ago.” (“JPMorgan CEO Jamie Dimon,” 2013)

He then framed the actions as bad judgment: “We made a terrible, egregious mistake. There’s almost no excuse for it” (Grandel, 2013). He lamented that the firm’s risk management efforts were “sloppy,” “stupid,” and exercised “bad judgment” (Schwartz & Silver-Greenberg, 2012) and that at the end of the day the losses “were self-inflicted, and this is not how we want to run a business” (Protess et al., 2012). In another forum in May, he acknowledged that the bank’s poor risk management efforts strengthened calls for stronger regulation on banks: “[It] plays right into the hands of a whole bunch of pundits out there . . . These were grievous mistakes, [but] they were self-inflicted” (Grandel, 2013).

Action

Concomitant with the acknowledgement of responsibility, JPMorgan Chase then released the results of internal investigations into trading losses to reassure regulators and the public at large. This report faulted other top executives in JPMorgan for the losses; it shifted the blame from Dimon to three top executives. This put JPMorgan Chase in a position whereby it could take action and fire its two top executives, and allow a third, Ina Drew—the chief investment officer of the firm, to resign (Schaefer, 2012). This functioned to dissociate the firm from the wrongdoing.

In late June, the company then announced a sweeping reorganization, designed to improve institutional controls going forward. The reorganization also resulted in a major political benefit for Dimon as it left the bank without an heir apparent, thus strengthening his political hand (“Timeline: Jamie Dimon,” 2013).

Justification

Nevertheless, as public outcry about the size of the losses continued to grow and the firm’s actional legitimation crisis continued; in June 2012, Dimon testified on behalf of the company before the Senate Banking and the House Financial Services committees. In so doing, he reassured Congress that the bank’s financial reserves could withstand the losses it suffered without needing any sort of public bailout, justifying its actions—as well as directly challenging the idea that the company’s actions had put the country’s financial system at risk. Dimon asserted that the company had a “fortress balance sheet” which in no way represented any financial risk to the country (Goldfarb, 2012). After he reiterated his apology, he offered a full explanation for the derivatives position the company took. He called the series of trades “stupid” and argued that the loss, while sizable, was an “isolated incident” (Silver-Greenberg & Craig, 2012). Finally, Dimon argued that the losses were the company’s own: “We will not make light of these losses, but they should be put into perspective . . . no client, customer, or taxpayer money was impacted by this incident” (Grandel, 2013).

By midsummer of 2012, though the company continued to face ongoing legal and regulatory challenges, the outrage at the size of the losses by JPMorgan Chase had started to subside. To this end, the preternaturally confident Dimon was confident enough in August to claim that the London Whale crisis was finished: “I want you to know the London Whale issue is dead. The Whale has been harpooned. Desiccated. Cremated. I am going to bury its ashes all over” (Grandel, 2013).

Authorization

Finally, in late 2013, JPMorgan Chase changed course and proceeded to negotiate with governmental agencies (Protess & Silver-Greenberg, 2013b). By doing so, the bank was able to demonstrate authorization in the form of full compliance with governmental regulations by settling all outstanding cases against the firm. In the course of 6 months, Dimon negotiated a $500 million USD settlement in July with the Federal Energy Regulatory Commission over charges that it had acted to manipulate the price of energy in Michigan and California (Protess & Silver-Greenberg, 2013c), an $80 million USD settlement with Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau in September for false promises in the sale of identity theft protections (Silver-Greenberg & Protess, 2013a), a $920 million USD settlement in September with a number of governmental agencies in London and Washington for the legal and regulatory failures surrounding the London Whale (Protess & Silver-Greenberg, 2013c) and in November, announced an unprecedented $13 billion USD settlement with the federal government to resolve outstanding concerns about the wrongdoing by Countrywide Mortgage Company and Washington Mutual, two firms that JPMorgan Chase acquired in the aftermath of the financial meltdown that occurred in 2008 (Silver-Greenberg & Protess, 2013c). By working with federal regulators and settling outstanding charges against the firm, Dimon and JPMorgan Chase were able to regain the imprimatur of third-party authorization that comes with full compliance.

In a company-wide memo, Dimon emphasized the actions the bank had undertaken in order to repair its legitimacy. In so doing, he announced the bank had “deployed massive new resources and refocused critical managerial time” to address leadership challenges, and announced that it would “face our issues, roll up our sleeves and fix” the compliance issues by working closely with regulators (Silver-Greenberg, 2013b).

Managing Dimon’s Personal Crisis

While Dimon was able to manage the crisis for JPMorgan Chase through the spring and summer of 2012 in such a way that it dissipated as the year went on, the legitimacy crisis for Dimon as CEO only gained traction as 2013 began (Suchman, 1995). As noted earlier, there was a growing chorus to split Dimon’s role as Chairman from his position as Chief Executive Officer. Indeed, the challenge was seen by all as a referendum on Dimon—a challenge to his authority as CEO (Davidoff, 2013).

Mortification

In public, Dimon appeared to take the criticism of his management of the London Whale crisis to heart. In addition to his earlier efforts to accept responsibility, his statements at an investor’s conference in January 2013 showed a CEO who was humbled by the criticism: “[Journalists and critics] are going to attack me; they are going to attack the company. I’m off my high-holy horse . . . It is what it is, don’t worry about it” (Grandel, 2013). In his annual letter to shareholders on April 10, he offered his most contrite statement to date. Engaging in mortification, he personalized his role in the crisis when he admitted: “The London Whale was the stupidest and most embarrassing situation I have ever been a part of” (Grandel, 2013).

Action

Yet mortification alone was not the only requirement to repair support for his joint role. Most critical for his continuation as Chairman and CEO was for Dimon and the board to display action—in order to reassure investors and other stakeholders that the problem had been addressed and subsequently would be unlikely to recur.

First, the JPMorgan Chase board announced it had cut Dimon’s bonus in half. In so doing, the board held Dimon responsible, saying: “Mr. Dimon bears ultimate responsibility for the failures that led to losses” (Silver-Greenberg, 2013a). Fortunately for Dimon, the internal report issued at the same time blamed top executives for the lack of oversight for the trades, but not him (Silver-Greenberg, 2013a).

While the board acted in public, Dimon’s team took its bare-knuckled campaign behind closed doors and used scare tactics—whispers that intimated that Dimon would resign if the efforts against him grew too strong (Silver-Greenberg & Craig, 2013). It had the desired effect. One major shareholder stated, “First we hear Jamie might leave if things go against him and then people start talking about the damage to the stock price . . . [I]t was effective” (Silver-Greenberg & Craig, 2013). With the aforementioned actions that removed other top executives who were possible future CEOs, the threat by Dimon to leave was seen as a real danger to the interests of the company.

Justification

Dimon then coupled his private efforts with a public campaign through identification and dissociation. He used an identification strategy in which key publics are reminded of past successes; indeed, the efforts of his board members and staff stressed the past successes the company had enjoyed under his leadership as well as Dimon’s efforts to manage the crisis (Craig & Silver-Greenberg, 2013b).

Relatedly, the efforts to buttress Dimon leadership continued, presenting him as a manager who was directly in charge and differentiating him from the investment team that had overseen the trades. One such vehicle by which he was able to do this was by revelations that under his leadership Dimon and the board were able to “claw back” $100 million USD from the traders at the center of the outsized wagers (though it should be noted that $100 million USD is a small fraction of $6 billion USD; Silver-Greenberg & Craig, 2013). These efforts showed a new day was in place at JPMorgan Chase—one in which the company would do all that was necessary to return shareholder value.

Authorization

In order to ensure his continuation of his leadership role, Dimon lined up his third-party support. First, JPMorgan Chase’s board issued a statement that communicated it would strongly support Dimon’s continued leadership as chairman of the board (Craig & Silver-Greenberg, 2013a). Relatedly, Dimon engineered a strong statement by the company in support of its current board leadership team, affirming his joint leadership of the company and of the board. JPMorgan stated as follows:

JPMorgan Chase strongly endorses the re-election of its current directors. This is the same board, risk committee, and audit committee that helped guide the company through the financial crisis without a single losing quarter and has led the company through three years of record performance. (Craig & Silver-Greenberg, 2013b)

All these third-party efforts proved effective at the shareholder meeting on May 21, 2013. By using a number of parliamentary maneuvers as well as the full-on communication offensive, Dimon and his team were able to win the vote to keep him in both positions.

Indeed, all of the hard work paid off. Ending the London Whale legitimation crisis, surviving a direct challenge to his leadership, and closing governmental actions against the firm collectively led The New York Times to dub him the “Teflon C.E.O.,” fully restoring Dimon’s pre-crisis legitimacy (Silver-Greenberg & Protess, 2013b).

Conclusions: Organizations, CEOs, and Institutional Voice

In an effort to manage the crisis, this article argues that Jamie Dimon and JPMorgan took a four-step approach, using strategies of mortification, action, justification, and authorization—in order to repair the actional legitimacy of the company as a banking and trading giant as well as Dimon’s leadership role.

Hearit (2006) proposed a set of criteria whereby to assess the ethics of crisis communication. In particular, Hearit (2006) argues that apologetic discourse must be truthful, sincere, voluntary, timely, address all stakeholders, and be performed in an appropriate context (Frandsen & Johansen, 2010). As it relates to the multiple apologiae offered by Jamie Dimon, they meet many, though not all of these criteria. While these apologies are certainty self-interested, they appear truthful; no subsequent evidence has emerged in the years following the London Whale fiasco that undercuts the claims of these apologies. While Dimon’s sincerity can be questioned initially—witness his “tempest in a teapot” comments—as the crisis grew in severity, his remarks took on more gravity. Over time, Dimon became more honest as to the extent of the London Whale losses, acknowledging the stupidity of the risks the company assumed (Grandel, 2013). High marks also go to Dimon for the timeliness of the crisis response; the bank worked to address the crisis a soon as news broke. Finally, in terms of stakeholders, Dimon and the bank addressed the three most relevant stakeholders to the crisis: the general public, lawmakers and regulators, and individual and institutional investors—and did so in appropriate contexts, before Congress, at annual shareholder meetings, and an investor conference.

In the wake of illegal or unethical acts, organizations experience a “moral learning curve” (Hearit, 2006, p. 75); that is, it takes them time to come to grips with the moral implications of their actions. That was certainly the case with Jamie Dimon and JPMorgan Chase in the wake of the London Whale crisis of 2012. While resistant at first, Dimon eventually “did the right thing” and, in so doing, was able to successfully resolve the crisis, and preserve his “Teflon” reputation.

Footnotes

Authors’ Note

An earlier version of this article was presented at the annual meeting of the Midwest Academy of Management, Milwaukee, Wisconsin, October 2013.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Keith M. Hearit

Author Biographies

Keith M. Hearit a 2013 American Council on Education Fellow, is a Professor in the School of Communication at Western Michigan University. A leading expert in the field of crisis management, Dr. Hearit specializes in how individuals and institutions respond communicatively to atypical situations, particularly those of their own creation.

Lauren Berkshire Hearit is an Assistant Professor in the Department of Communication at Hope College. Her research focuses on the intersection of economics, strategic communication, and organizational communication.

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