Ask JPMorgan's Dimon: Not Everyone Follows the Leader
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Just a few days ago James Dimon, CEO of JPMorgan Chase, was riding high. Not only did he pick up Bear Stearns in what amounted to a fire sale – shares that only a year ago fetched $159 a piece were going for $2 – he was heralded for doing so. Seen as a savior, it was Dimon who along with the feds was credited with having crafted a deal that would wrest Bear Strearns from the clutches of bankruptcy.
Except . . . not so fast! Like growing numbers of other leaders, both in the private and public sectors, Dimon has learned right fast, and to his immense irritation, that times are changing. Those who once upon a time would have fallen into line are more audacious now. Not everyone follows the leader.
Objections to the arrangement Dimon struck were vocal, visceral, and vociferous – and they came from every direction. Loudest of all was the voice of Joseph Lewis, Bear Stearn’s single largest shareholder, who made plain he would fight Dimon’s deal tooth and nail. Lewis called the plan “derisory,” and in a regulatory filing vowed that he and other members of his group would “take whatever action they deem necessary and appropriate to protect the value of their investment in the shares.”
But Lewis was only the tip of the proverbial iceberg. Litigators across the land were licking their chops, knowing that some shareholders were likely to sue Bear Stearns (read JP Morgan) for securities fraud, and that at least some employees, many of whom had lost considerable chunks of change, would also sue for damages. In fact the internet was already plied with possibility – “Free Legal Consultation for Bear Stearns Shareholders” read one such irresistible invitation.
And there was resistance in the ranks as well. Some of the many longtime employees faced with the prospect of losing all their savings simply cried. Others though were outraged and raging. One Bear Stearns employee started a web site to rally opposition to the $2 deal. Other subordinates talked back to their new superiors (from JP Morgan), setting a confrontational tone that no CEO would or should welcome.
As it became increasingly apparent that the $2 a share deal might not fly Dimon was reported by the New York Times to be “increasingly desperate.” He was furious as well, telling his associates he would “send Bear back to bankruptcy” if the original deal was struck down. But in the end, recognizing he had less power than he originally imagined, Dimon backed down. JP Morgan Chase agreed to quintuple the offer for Bear Stearns, from $2 to $10 a share. For Bear Stearns shareholders and employees this will provide cold comfort. But it was better than what they had - and it was a reminder to those with great power that those with less are not lightly to be tampered with.
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Barbara Kellerman is the James MacGregor Burns Lecturer in Public Leadership at Harvard University's John F. Kennedy School of Government. She was the Founding Executive Director of the Kennedy School’s Center for Public Leadership, from 2000 to 2003; and from 2003 to 2006 she served as the Center’s Research Director. She is author and editor of many books and articles on leadership. She is the author of 
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Very interesting post on leadership. Great stuff and thought provoking.
How do you know IF you are a leader? You have to turn around and see if anyone is following you.
How do you get people to follow you? When you help other people get what they want, you get what you want.
Dimon needs to have pulled a page from LA Laker's Coach Phil Jackson's playbook.
When Phil Jackson joined the Lakers the team was dysfunctional and lead by two bi-polar and squabbling super stars Kobe Bryant and Shaquile O'Neal. O'Neal in particular was Jackson's biggest challenge. A poor free throw shooter, O'Neal was also 30 pounds overweight with the season opener a few weeks away. Had Jackson mandated a weight loss O'Neal would have slam dunked Jackson.
So Jackson took a little time, a couple of weeks to wine and dine O'Neal and Bryant to become their friends, to find out what they wanted and to determine their vision for the team. Jackson spent all of this time LISTENING. And once Jackson had secured the trust of the two super stars Jackson said to O'Neal, "...and by the way Shaq, if you don't loose those 30 pounds you won't be playing in the season opener." O'Neal lost the weight for Jackson because he was his friend.
Maybe there wasn't the time to accomplish this task here, but it generally works when you can answer everyone's most heartfelt question, "What's in it for me?" And that's what Dimon should have done for Joseph Lewis and everyone else that required a courtship in this bailout.
Dimon has also failed in his perception that HE is the leader. He operates from "the myth of position." He has the title, but that does not necessarily make him "the leader" here. There once was a pastor who accepted his first congregation in Iowa. Recognizing that the church needed painting he exhorted his flock from the pulpit to no avail. After church, at coffee, he observed the congregation engrossed by the words of the group's oldest member, Farmer Bill. Realizing that Bill was the flock's true leader the pastor went out the following week to help Farmer Bill mend fences. When resting in the hot sun the pastor asked Bill if he thought the church needed painting. Agreeing that it did, the pastor never said another word about painting the church. At coffee the following Sunday Farmer Bill secured the entire congregation's pledge to paint the church.
To be the leader one need realize that it is OK to let go and get your objectives accomplished through another.
- Posted by Martin Calle
March 27, 2008 3:15 PM
Excellent post. I enjoyed reading Mr. Calle's comments, which added value to the discussion.
I read a wonderful book on Negotiation, "3D Negotiation", by Lax and Sebenius. Viewing the Bear Stearn dilema through the lens of that book, I suggest that the lack of proper "set up" was a fatal error. Simply stated, "set up" means making sure the right parties are involved in the negotiation.
I understand that time was of the essence. But, why create a deal quickly that is doomed to fail? When the deal was made to value Bear Stearns at $2.00 per share, was Joseph Lewis asked to participate? Were the 14,000 employees representated at the negotiations by someone other than the President and CEO? Especially since large amounts of stock were sold by the President within 6 months prior to this deal. Was consideration given to implementation beyond the point of the deal?
One definition of leadership is influence. Did Mr. Diman have any influence on Mr. Lewis or the employees at Bear Sterns? Who did the President of Bear Stearns lead? Especially since he went public several days before the collapse of BS announcing there was no liquidity problem. Authentic Leadership?
I have a feeling the saga of Bear Stearns will be studied in Business Schools for a long time.
- Posted by lawrence berezin
March 30, 2008 12:38 PM
The resonable points in the article and in subsequent posts are lessened by neglecting other factors in play. The role of the government, the time urgency, the lack of quoted data points from JPM. What other options were there? Who else was going to jump in? No one. It is easy to make kneejerk assumptions but BS earnings, more background, other options, and more will help paint a more accurate picture. All of this smells like taking a narrow view to make a point, but in the order of doing so diminishing the impact.
- Posted by hans peterson
April 16, 2008 4:00 PM
This is a terrific discussion. One obvious factor that is missing was the pressure that the Treasury and Federal Reserve put on this deal - both from a share price and timing perspective.
Some would argue that the $2 bid was encouraged (and perhaps, mandated) by the Treasury so that the government proposed bail-out would not look so bad. "Gee, no wonder Paulson & Co. pledged tax payers' money to bail out Bear, the situation was desperate. Look Bear is/was only really worth $2."
And yes, there will be many cases focused on Bear Stearns. However, I think a better case would be the JP Morgan – US Government cronyism case. There was no free market system, no auction, no multiple bids for Bear.
The scenario seems like Jamie Dimon got a call from Paulson and Bernanke. I would imagine the call went as follows: "Jamie, we need your help. But we'll make it a win-win." And then they handed over Bear Stearns to JP Morgan for a pre-determined, bottom basement price of $2 knowing well that Jamie would/could pay up to $10, if need be. A clear case of “you help us, we’ll help you.”
These are smart people. It had to be clear that whatever the first offer was, it was going to cause violent shareholder protests. So the plan was:
Step 1: Throw out a $2 bid.
Step 2: Shareholders & employees get outraged.
Step 3: Extend an olive branch and counter offer $10 per share.
Step 4: Get senior management to sign off on $10 per share (or threaten them with multiple regulatory investigations/penalties/etc).
Step 5: Get deal done ASAP.
Genius.
Karl Zachar
www.karlzachar.com
- Posted by Karl Zachar
April 16, 2008 4:24 PM
Leadership... In the corporate world is one step ahead of the competition. Looks like a good deal: buy low. But what did we get as shareholders. A company without the foresight or internal controls to warn of the upcoming storm. Debt. Investers running from Bear-stearn. And the bonus.. disgruntled employees that couldn't do their jobs right or they wouldn't be in this mess. Only time will tell.
- Posted by Paul Mueller
April 21, 2008 9:47 PM