Jamie Dimon (CEO of JP Morgan Chase) has been in the news for the last couple of weeks and I’m sure he’d much rather not have been (at least not in the news for the reasons he and his firm are in the news). The short version:
JPMorgan Chase says losses from a massive trading blunder in the bank’s London have reached $5.8 billion and could go as high as $7 billion.
That’s a pretty big matzo ball hanging out there. I think that this occurrence (and probably the kerfuffle with Barclay’s and LIBOR) is tied to something I read in the Harvard Business Review last week. It was an article by Ron Ashkenas in that talked about the disappearance of the general manager:
At one time general managers were at the center of the action. Two decades ago, organizations were designed around stand-alone business units, so all managers had to understand finance, technology, manufacturing, sales, marketing, strategy, human resources, and more. . . However starting in the 1980’s, many companies evolved to “functional” structures to cut costs and reduce duplication. The transition consolidated those support functions which were common among the BU’s [business units]. GE, for example, went from hundreds of discrete BU’s to a dozen large businesses with each one having strong, centralized finance, HR, engineering, marketing, and manufacturing units. . . In fact, for many chief executives I’ve recently worked with, the first real GM job that they had was CEO!
While I can see how this trend has helped to save companies lots of money, I find it a tad worrisome. I’ve shared my views in the past about having an eye towards the bigger picture and I wonder if by consolidating these business units that this eye towards the bigger picture has been shielded. That is, not having a general manager there to act as “oversight” may have made it easier to shirk long-term goals and focus on short-term profits.
Tying this back into the JP Morgan Chase loss: I wonder if the firm had a number of general managers (at more levels than the C-Suite) would this have happened? Would a general manager responsible for the trader in question have allowed this kind of trade to happen? The same question could be asked about Barclay’s and LIBOR. Would a general manager have created an environment where it was okay to behave so unethically? It’s nearly impossible to answer these questions either way. Nonetheless, it is worth considering the trend of the organizational structure of firms. Is it really in the best interest of the firm to eliminate all general managers? Are the short-term gains worth sacrificing the long-term sustainability?