Overcoming a ‘crisis’ of CEO credibility

Overcoming a 'crisis' of CEO credibility

In April, when JPMorgan’s so-called “London Whale” derivative trading scandal broke, CEO Jamie Dimon seemed to know little about the errant trades, praising the chief investment officer involved and dismissing the backlash as a “tempest in a teapot.” Two months later, an investigation estimated the losses from these trades at $5.8 billion.

After the LIBOR scandal was uncovered in June, with Britain’s Barclays Bank as one of the primary players, then-CEO Robert Diamond claimed he knew nothing about the possible rate manipulation until the allegations came to light. And even after he resigned, he told Parliament the same line, despite the fact that Diamond had signed off on a 2011 annual report mentioning an investigation of the bank for possible rate fixing.

Meanwhile, questions over when Republican candidate Mitt Romney really left the helm of Bain Capital have become a talking point on the presidential campaign trail.

Should Dimon and Diamond have known about these massive cover-ups at their organisations? What role did they play in allowing these problems to go on for so long? How much responsibility did Romney have for decisions made at Bain after he was apparently no longer in charge of day-to-day operations? And how has the business environment changed such that the once honourable and respected role of the CEO has turned into such a dubious and scandal-plagued burden?

“Right now, we have a crisis of trust and credibility, and CEOs need to overcome that,” says Thomas Donaldson, a Wharton professor of legal studies and business ethics.

Most experts agree that the role of CEO has become much more complicated over the last few decades.

As Donaldson notes, the days of Henry Ford-style leadership – when knowing everything about your product was enough – are long gone. For example, in 1927, Ford sold 250,000 Model T Cars to consumers in the US. Last year, Ford sold more than five million cars and various other vehicles in dozens of countries. And Ford is no longer just selling cars – it also produces other goods and helps to finance consumers’ purchases. “The complexity and size has really changed over the years,” Donaldson points out.

Technology has also increased the role and responsibility of CEOs, according to Donaldson, who says the business world is still in a state of “tech shock”.

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