Case: Should Management be Held Accountable for the Actions of Employees?
The Permanent Subcommittee on Investigations of the United States Senate held hearings on JPMorgan's $6.2 billion trading debacle. According to the 307-page report, 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 reportable 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 reported 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.
1. How should blame be allocated for the mishap?
2. Do senior executives get a free pass for actions of subordinates hidden from them?
3. Should the boss always bear the ultimate blame?