Four Lessons from JPM's Handling of Dimon Health Matter
JPMorgan Chase's (JPM) announcement that its top executive, Jamie Dimon, will undergo eight weeks of chemotherapy for throat cancer should make banks from Main Street to Wall Street ask themselves an important question: what would we do if our leader got sick?
It's a more frequent problem than many realize, as only the most high-profile cases get attention and many of those quickly fade from memory except among those who had to battle illness or its effects on business operations.
The leaders of several banking companies HSBC, Synovus Financial (SNV) and Hudson City Bancorp (HCBK) have confronted health problems in recent years, often while facing tremendous business challenges.
The cases of JPMorgan and these other companies provide important lessons in how banks should prepare for, and react to, similar unfortunate circumstances. These include the need for succession plans and transparency once problems surface.
Here are four broad takeaways to guide bankers' self-analysis.
1) Disclose Quickly and Hide Nothing
JPMorgan seems to have learned from the sins of other big corporations in handling emergencies and the case studies are not limited to the banking industry nor to health matters.
It should be commended for how it handled Dimon's announcement, says Bob Chlopak, a partner with CLS Strategies, a crisis-management firm in Washington. JPMorgan "communicated to shareholders and employees on a timely basis," he says. Further, it gave details on the length of Dimon's treatment period and alluded to the succession plans it has in place.
"Chase is a good model for how this ought to be done," Chlopak says.
In contrast, Apple and Target poorly handled their similar crisis-level events.
"Apple, unfortunately, is the poster child for how not to handle it," Chlopak says, referring to how the tech company responded to market speculation about the health of its founder and CEO, Steve Jobs.
Rumors about Jobs' health persisted in the years before his death in October 2011. He was first diagnosed with pancreatic cancer in 2003, but neither Jobs nor Apple publicly discussed the diagnosis until years later, after Jobs had made public appearances in which he appeared frail and gaunt.
"They were not timely, they were not transparent, they didn't address the periods that Jobs would be in treatment," Chlopak says. "The stock took some hits during that period as a result."
There are comparable lessons, too, in how Target handled the news of its data breach. It slowly released information and gave few details about the extent of the problem, Chlopak says.
"Target is going to be the poster child for what everyone ought to learn about how to handle a data breach, about what not to do," Chlopak says.
2) Expect Crises When You Are Most Vulnerable
JPMorgan is exhibit A of this maxim, following several years of controversy and questions about its succession planning.
Its bad headlines have included, but are not limited to: billions of dollars to settle investigations into mortgage practices and other allegations; the London Whale affair; and persistent, strong criticism of Dimon.
When JPMorgan announced late Tuesday that Dimon would undergo cancer treatment, it made clear that he would continue to run the company as normal except that he would cut back on travel during his two-month treatment schedule.
Yet the sudden news revived succession questions that have dogged JPMorgan because several up-and-coming executives have left in recent years.
Mike Cavanagh, the co-head of JPMorgan's corporate and investment bank, left the company in March to join Carlyle Group as co-president and co-chief operating officer. Frank Bisignano left his job as JPMorgan's co-COO last year to run payments processor First Data. Former consumer bank head Charlie Scharf left to become CEO of Visa (NYSE:V) in 2012.
Other big departures Chief Investment Officer Ina Drew, former Chief Risk Officer Barry Zubrow and former investment bank head Jes Staley followed the London Whale affair that began two years ago.
The company sought to put out the word Tuesday that it has solid succession plans. "The board had already established a short-term, medium-term and longer-term succession plan," a JPMorgan spokesman, Joseph Evangelisti, told the New York Times.
Time will tell.
The more recent exits had seemed to burnish the rising star of Matt Zames, who took full control of the COO job after Bisignano left. Notably, Zames had been sent in 2012 to mop up the bank's chief investment office after the London Whale scandal.
Several other names of possible successors were sprinkled throughout news coverage. Gordon Smith, the head of consumer and community banking, was mentioned, especially in case of a short-term need.
For the long term, those frequently mentioned include COO Zames; Mary Erdoes, the CEO of asset management; Daniel Pinto, the CEO of the corporate and investment bank; Doug Petno, the CEO of commercial banking; and Chief Financial Officer Marianne Lake.
3) Even Small Banks Have to Make Formal Preparations
Any bank, large or small, is required by its regulators to have a succession plan in place, says Scott Petty, a recruiter at Chartwell Partners in Dallas who has advised KeyCorp (KEY) and community banks on executive searches. Regulators have recently elevated the importance of that task by requiring senior-level management to develop those plans.
But that's not to say that all banks, regardless of size, are equally prepared to handle these situations.
The truth is that huge banks like JPMorgan are much better prepared to deal with an executive's sudden health issues than smaller banks, Chlopak says.
"Larger companies are going to have more resources, like outside auditors and directors who have dealt" with these issues before, he says. "They're going to have advisors and board members who should say that they should have [these types of procedures] in place."
"It's just good governance, and you never know when someone could be hit by a bus," Chlopak says.
Perhaps because they don't have the level of resources of a bank the size of JPMorgan, community banks should move now to set the stage, Petty says.
A good idea is to have an existing employee chosen ahead of time who would serve as interim CEO, he says. Having an interim executive gives a board's governance and nominating committee time to choose a long-term successor. It's also important for a bank board to have approved a written succession plan.
These conversations are sensitive, if not awkward, to have among directors and executives but they're necessary steps for any bank, says Steven Thompson, head of consultancy at red24, a London crisis-management firm
"Chase [board members] should have had the conversation around the question of, 'What if Jamie dies?'" Thompson says. "And Jamie should be included in that discussion. Although it will be quite emotive, it's far better if he's in the room. Then, when the worst case happens, you know you've got his blessing."
4) Study the Examples of Others Who Have Endured Crises
There have been a number of them in recent years.
Irene Dorner, the CEO of HSBC USA, learned in the fall of 2011 that she had ovarian cancer right about the time she took on increased responsibilities as head of HSBC's U.S. operations. She underwent six months of chemotherapy and had surgery in May 2012.
"It was an enormous shock," Dorner said in a "Most Powerful Women in Banking" profile in 2012. "It was not in my game plan at all. But I was the luckiest person in the world" to have a surgeon discover the cancer while treating an unrelated problem.
Dorner since then has been widely praised for turning around HSBC's troubled U.S. operations, including strengthening its anti-money-laundering controls. She recently announced that she plans to step down from the job Nov. 1.
Kessel Stelling, now the head of Synovus (SNV), became the CEO on an interim basis in the summer of 2010 when Richard Anthony took a leave of absence to seek care for a blood vessel disorder. Stelling had been president and COO at the time.
The emergency change occurred in the aftermath of the financial crisis, as the Columbus, Ga., bank was wrapping up its eighth consecutive losing quarter. A few months later, Stelling was named permanent CEO and Anthony resumed his duties as chairman until retiring in early 2012.
Under Stelling, Synovus has been on the comeback trail and battled occasional takeover speculation. It repaid the Troubled Asset Relief program last year, conducted a reverse stock split this year and reported profits of $45.9 million in the first quarter after profits for the full years 2012 and 2013.
Ron Hermance, the chairman and CEO of Hudson City Bancorp (HCBK), announced in early 2012 that he would take a medical leave to have a bone marrow transplant. The Paramus, N.J., company's board named President and COO Denis J. Salamone as Hermance's acting replacement.
Hermance returned to work in August of that year and remains on the job. That same month, Hudson City agreed to sell itself to M&T Bank (MTB). The deal has been held up because regulators want M&T to fix a number of compliance problems; in the interim, Hudson City's deposits, loans and assets have fallen each quarter compared with the last.