Governance Watch - Issue 6

Ethics and Reputation

You may have seen a story in the Financial Times this week around JPMorgan and accusations of fraud. But if you were to do a Google search for ‘JPMorgan accused of fraud’ as a partly-remembered-headline-seen-in-passing in order to find it again, you would get a long list of stories containing both the bank’s name and allegations of fraud involving single individuals or ex-employees, going all the way back to 2004.

This week’s story is a big one. It is about an investor lawsuit which alleges that the US bank steered a technology company client to sell itself to BlackBerry at a knockdown price because it wanted to win lucrative future investment banking business. It has been filed on behalf of some shareholders of Good Technology, a security software provider, and accuses JPMorgan of committing “fraud on the board” over the advice it gave when directors were debating whether to pursue a public listing or a sale in 2015, says the FT.

The way in which these stories are now covered has certainly changed in the last decade. Quality reporting is far quicker to identify the ‘conflict of interest’ and ethical concerns in business news.

The FT report quotes Cristina Morgan, a vice-chair in the technology banking group at JPMorgan and the relationship manager for the Good Technology account. When asked in a recent deposition by the suing shareholders if IPOs were a loss leader for JPMorgan, she responded: “IPOs are a loss leader for all banks.”

In court filings, the bank has denied wrongdoing. A trial is scheduled to begin in June.

It is a case that seems likely to give fresh life to the ongoing debate since the financial crisis of the need for a strong grounding in ethics in corporate culture, particularly in banks. By extension, it raises question marks around the need for closer scrutiny in those divisions that may be “loss leaders.”

Because one sense in which we have come a long way since the financial crisis is in the new emphasis now in wanting to define the very purpose of listed businesses, beyond merely the maximisation of profit.

Social Media and Reputation

Not only has the reporting of ‘news’ changed since the financial crisis, but the arrival of social media has thrown a missile into corporate attempts to control the external message by marketing, rather than good corporate communication.

By the time Oscar Munoz, CEO of United Airlines had issued a second apology last week for the violent removal of a passenger from a flight captured by video that went viral,  close to $1bn had been wiped off the holding company’s value before the stock rallied. The language used by Mr Munoz in his second apology was markedly different than that in his first attempt.

In the UK, a banker got into serious trouble with the regulator recently for the way in which he used social media to share information to which he was entitled in a professional capacity. As I wrote on Forbes, does the use of social media both reveal and create new ethical risk ?


Banks And Ethics

There was another big story in the last fortnight involving a bank.
American-born Jes Staley, Group CEO of Barclays Bank plc, tried to unmask a whistle blower who had raised questions about a recently recruited senior executive, and is being investigated by the regulators.

For more thoughts on that, see my piece on Forbes.

There is far more to be said on the notion of ethics, and mistakes, particularly when they are made by those mandated with responsibility for the corporate governance of a business. As to whether or not they are believed to be ‘honest mistakes’ of course comes down to many things – including, once again, good communication.


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