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JPMorgan Chase CEO’s lessons from leadership

The shareholders' letter is his longest and follows last year’s abbreviated letter written less than a week after returning to work from emergency surgery.


Jamie Dimon, the Chair and CEO of JPMorgan Chase, the largest and most profitable of the big four banks in the US, has issued a 65-page letter to shareholders that covers many areas, including a fascinating insight into leadership.

“Great management is critical to the long-term success of any large organisation. Strong management is disciplined and rigorous. Facts, analysis, detail … facts, analysis, detail … repeat. You can never do enough, and it does not end. Complex activity requires hard work and no uneducated guesswork,” Dimon wrote.

“Test, test, test and learn, learn, learn. And accept failure as a ‘normal’ recurring outcome. Develop great models but understand they are not the answer – judgment has to be involved in matters related to human beings and extraordinary events.

“You need to have good decision-making processes. Force urgency and kill complacency. Know that there is competition everywhere, all the time. But even if you do all of this well, it is not enough,” Dimon added.

Dimon, 65, is the most prominent CEO in global banking, serving as a spokesman for the industry while leading a titan of both Wall Street and consumer lending. He has been in charge of JPMorgan Chase since the end of 2005. He is the only CEO remaining after leading a major bank through the financial crisis.

Dimon, J P Morgan Chase
J P Morgan Chase’s “Fortress” Balance Sheet. Photo: JPMorgan Chase

The shareholders’ letter is his longest and follows last year’s abbreviated letter that came less than a week after Dimon returned to work from emergency heart surgery.

Leadership lessons

Dimon broke down his lessons on leadership into six chapters:

1. Enforce a good decision-making process

A good decision-making process involves having the right people in the room with all information fully shared (all too often I have seen precisely the opposite). There is also the need for constant feedback and follow-up. A bad decision-making process kills.

If necessary, review the information over and over – often the answer is simply waiting to be found – and if you don’t have to, don’t rush. While intuition matters, and it can be the final deciding factor, intuition is not guessing – it is usually based on years of experience, hard work and practice.

2. Examine raw data and focus on real numbers

It is helpful to try to separate and examine actual raw data versus calculated numbers. A few examples will suffice: You always learn a lot more when you dig deep into the numbers. Look at total car sales, the number of people employed or the actual price of goods compared with calculated data like gross domestic product, inflation or productivity.

For the latter, examine all of the methodologies and assumptions that go into those calculations. For instance, productivity tries to adjust for (or simply sometimes can’t adjust for) new products that are superior to old products, such as smartphones versus dumb phones; similarly, calculations for inflation factor in something called “owners’ equivalent rent,” which generally differs substantially from actual home prices or rental costs.

Applied to corporate operations, examine the details. Many companies look at “net new accounts,” which could be going up dramatically because of prices or marketing – masking attrition or consumers’ dissatisfaction with the product. In detail, look at errors, complaints, attrition, competitors and other new entrants.

Look at market share by customer segment so as not to miss behaviour shifts. Frequently, raw data tells a different story from what management may be saying: Too often management teams use the facts to justify what they already think or to celebrate what they believe is a great success. Being true to these principles requires relentless discipline – which you should expect of us.

3. Understand when analysis is necessary and when it impedes change

While I am fanatical about detail and multiyear analysis, it’s important to be cautious about its application. Assumptions are frequently involved, and small changes in a few variables can dramatically change an outcome.

Even net present value analysis fails to capture the true value of something after a certain period of time. For instance, people commonly look at the five-year net present value of a customer acquisition, which can mask the true compounding effect of keeping that client for 20 years. And we have often seen net present value analysis fail to capture ancillary benefits (like customer happiness) that can often be more important than the analysis itself.

Sometimes a new product or an investment should simply be considered table stakes – meaning there’s no need to do analysis at all. Think about banks adding the capability of opening new accounts digitally, for example, or maintaining a strong technology infrastructure and adopting new technologies, like cloud or artificial intelligence.

These could be life-or-death decisions for a company, so instead of focusing on net present value, the emphasis should be on getting the work done properly, efficiently and quickly. Bureaucrats can torture people with analysis, stifling innovation, new products, testing and intuition.

4. Before conducting an important analysis, assess all factors involved

I frequently see people trying to understand a complex situation without considering all the factors involved. In the final section, I attempt to analyse China as a strategic competitor. It’s critical to weigh all the factors: cultural, psychological and historical. Also, what are the legal factors, and how is the rule of law applied? What is the country’s situation with raw materials? What is the country’s geography and relationship with its neighbours?

It is important to lay out all the important variables before you start an assessment to ensure that they are all carefully reviewed and that one’s judgment is not clouded early on by over-focusing on just a few issues. In business, this type of assessment should also be applied to your competitors and to those you deem to be future competitors, as well as to your own strengths and weaknesses.

5. Always deal with reality

In business, as in life, we must deal with both certainty and uncertainty. A simple look at history and our economic past illustrates the rather unpredictable nature of things. As a result, at the firm we try to look at all the possibilities, as well as their probabilities. For example, we conduct well over 100 stress tests each week to make sure we are prepared for what we are not predicting. We even evaluate the laws and regulations we live under today and project how they might be interpreted 10 years from now – we call this “reinterpretation risk”.

We look at a broad range of possibilities and probabilities to ensure that we understand, as best as we can, all of the possible outcomes – recognising that we are not trying to make a forecast with certainty. Sometimes the action you take may not be the one that gives you the best outcome but the one that gives you a good outcome and reduces the possibilities of bad outcomes. It also is often very difficult to capture the inflection points in the economy.

Most people imagine the future as being roughly equivalent to the past, give or take a bit. However, we know there are significant inflection points, which are sometimes easy to see in hindsight but almost impossible to predict. While we also try to keep things as streamlined as possible, making things simpler than they really are is equally flawed.

Too many times people seek simple, cookie-cutter solutions that sound good but just don’t work. For example, class size in schools matters but not necessarily in all types of classes. In Vietnam, when a major city once had a rat population problem, the government devised what it thought was an easy, foolproof solution: Pay people to kill rats. All people had to do was bring in a rat tail to be paid. What the government didn’t consider was that people would breed rats for a supply of rat tails to sell. (All compensation schemes should be continuously re-evaluated.)

6. Remain open to learning how to become a better leader

As companies get bigger and more complex, leaders need to be more like coaches and conductors than players. If CEOs are running a smaller business, they can literally be involved in virtually everything and make most of the decisions – they often rely on traditional command-and-control tactics.

This approach does not work as companies get bigger – the CEOs simply cannot be involved in every major decision. Command and constant feedback may be better than command and control. Here is where leaders would be better off providing clear direction and letting people do their job, including making mistakes along the way.

Soft power – essentially trust and maturity – may become more important than hard power. Soft power creates respect among team members, with the coach offering honest assessment and support while allowing flexibility. Here the boss makes fewer but tougher decisions, such as removing people – when it must be done – and even then, it is handled respectfully.

People will give to the best of their ability for leaders they respect and who they know are trying to help them succeed.

Respect and learn from your people. Managers and leaders get spread pretty thin. While they should have a wide grasp of many subjects, they could not possibly know everything their people know. Leaders should continually be learning from their people. They should go to a sales conference and ask lots of questions of their salespeople.

Gather technology people in the room with branch managers and ask, “How are things working?” Taking a road trip should not be only for the purpose of showing the flag but also for learning from your employees and customers.

Have curiosity. It’s important to ask questions to try to understand varying points of view. Be willing to change your mind. Read everything. Don’t defend decisions of the past. Leaders should be happy when their people prove them wrong. Do not have a rigid mindset. And do not be complacent.

Skip hierarchy. If everything in a large organisation must go up and down the hierarchical ladder, bureaucratic arteriosclerosis along with CYA sets in, and that company’s life expectancy is substantially shortened. It should be routine that data, memos and ideas are shared – skipping hierarchies – and aren’t vetted by all in the chain of command.

This makes people more responsible for what they are doing, improves the dissemination of new information and new ideas, and speeds things up overall. In addition, it’s good to have a few mavericks who are not afraid to shake things up. The ones who challenge authority or convention often get far more done than the ones who go along to get along. Collaboration is wonderful, but it can be overdone.

Act at the speed of relevance. When leaders have plenty of time to make decisions, they should analyse all factors over and over – take the necessary time, as choices can be hard to reverse. And there are other decisions that are more like “battlefield promotions” where there’s no luxury of time, and, in fact, going slow may make things much worse.

I’ve also seen people take a tremendous amount of time to make an unimportant decision, which just wastes time and slows things down. In business, some decisions should be made carefully – for instance, putting the right people in the right job. But others, such as making pricing decisions, dealing with customer problems and handling reputational issues, must be done quickly, for these problems do not age well.”

The future of finance

Dimon, who built the biggest and most profitable US bank in history, also warned shareholders that his industry’s disruption by technology is at hand. Shadow lenders are gaining ground. Traditional banks are being consigned to a shrinking role in the financial system.

“Banks have enormous competitive threats – from virtually every angle,” he said. “Fintech and Big Tech are here … big time!”

Dimon concluded on a positive note for the US economy.

“In the United States, the average consumer balance sheet is in excellent shape. The consumer’s leverage is lower than it has been in 40 years,” Dimon wrote.

“In fact, prior to the last US$1.9 trillion stimulus package, we estimate that consumers had excess savings of approximately US$2 trillion. Corporations also have an extraordinary amount of cash on their balance sheet, estimated to be approximately US$3 trillion.

“And the financial system and investors have already adopted more conservative leverage requirements due to regulations – so they have very little need to de-leverage. The QE in this go-around will have created more than US$3 trillion in deposits at US banks, and, unlike the QE after the Great Recession, a portion of this can be lent out.

“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom. This boom could easily run into 2023 because all the spending could extend well into 2023.

“The permanent effect of this boom will be fully known only when we see the quality, effectiveness and sustainability of the infrastructure and other government investments. I hope there is extraordinary discipline on how all of this money is spent. Spent wisely, it will create more economic opportunity for everyone.”

To read Jamie Dimon’s 25-page letter to shareholders in full, click here

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