Thursday, January 19, 2006

Jamie Dimon's "Second Chance"

I honestly don't know whether to laugh or cry. This morning's Wall Street Journal piece on the front page of section C, complete with frameable cartoon of Jamie Dimon carrying a ladder, hammer and blueprints, contains enough material to do both.

My first reaction is to wonder at the paucity of capable leaders and managers which requires that the once-failed protege of Sandy Weill is called on to head a major US bank. Can there really be no better CEO for Chase than this retread? The article correctly points out that Dimon hasn't really had significant management experience in anything but cutting costs and operations, as befits a student of the now-departed Citigroup CEO.

So I guess we are to believe that a cost-cutter is now the best candidate to try to grow a company which (and I say this as a former "old Chase" staffer who has met and worked with several former CEOs of the company, including Mr. Rockefeller) has never successfully grown at a consistently superior rate without engendering serious credit problems and losses.

Without going into detail on each of the article's points regarding Chase's current business positions, let me suggest two things.

First, the management team at Chase, including it's recycled new leader, is probably not up to the task. None of the precursor banks (Chase Manhattan, Chemical, Manufacturers Hanover, JP Morgan, Banc One, First Chicago) which are now embodied in JP Morgan Chase ever attained performances which consistently placed them among the very best US financial institutions. Why should the aggregation of mediocrity change this? As my old boss and mentor at Chase used to observe, "what good would putting Manny Hanny, Chemical and Chase all together do? All you'd get is single larger mediocre bank!"

Second, the mere installation of Dimon as Chase's CEO may well indicate how meaningless the gesture actually is. Chase is but one, and third in size at that, of a new breed of financial utilities. In a world in which technology has allowed more nimble and innovative firms to outperform larger competitors, BofA, Citigroup and Chase predictably have moved to bulk up. I actually doubt it's that important who runs these shops anymore. Their CEOs probably can't profitably exercise all that much influence on such large organizations of risk-averse employees.

For example, Weill left Citigroup amidst a host of problems stemming from his leadership style. His successor, Charles Prince, is still struggling to repair the damage. I can't even tell you who heads up BankAmerica anymore. It seems such a faceless financial conglomerate.

Still, it pains me somewhat to see yet another large US corporation resort to recycling a failed executive, rather than look for fresher, more talented and creative candidates. Perhaps like voters and their elected governments, shareholders get the CEOs they deserve.

It is doubtful to me that a Dimon-led Chase will qualify as a holding among the consistently superior growth companies in my equity portfolio anytime soon.


Anonymous said...

Great blog!
This post is a coda to the fact that the so-called executive suites of most major U.S. companies, esp. financial houses, are virtually oblivious to the real issues that drive our economy today and the fundamental lessons--taken for granted by any well-grounded entrepreneur--re how to turn a profit.

C Neul said...

Thanks for your comment. I agree- so many large firms are run by size-obsessed CEOs who rarely if ever understand what really drives their company's ability to consistently outperform the market in terms of total return.

I can speak from experience that the management of the "old" Chase did not. And by observation, neither did those of its competitors cum merger partners.

srini mahadhanapuram said...

i actually beg to differ. i wouldnt consider jamie dimon a "failed" executive. just because he got ousted in a power struggle by a seriously insecure mentor doesnt mean he failed. if anything, he has displayed tremendous success before and after being fired by sandy weill. and it hasnt been by cutting costs alone, its simply not possible to achieve long term success by just cutting costs. he displays tremendous drive and sense, and in my mind thats what makes him successful. dimon's not a saint by any stretch of imagination but i believe he's a brilliant executive. of course, each of us has our own opinion on what constitutes success.

C Neul said...


Thanks for your comment.

Yes, we will differ here. I think Dimon is so far from being "brilliant." He's a hack who learned at the knee of an, as you rightly point out, insecure senior hack.

I believe has has not succeeded because no company he has headed has organically, or by acquisition and consistently over the long term, outperformed the market. "Failing" in a power struggle is, frankly, moot.

He's just another one of those many, mediocre CEOs who are overpaid for average results. Now he's being overpaid for running a gargantuan financial utility which can't get out of its own way, and will almost certainly not ever outperform the S&P for more than a few years at a time.