Observe. Orient. Decide. Act.

Context

Before disaster strikes, a good WarTime CEO already plays out hundreds of scenarios in their head to develop the requisite battle plan. This is how Jamie Dimon, the straight-talking CEO of JPMorgan Chase, approaches disruption in the banking industry and the wider economy: with a field of vision that encompasses the entire battlefield and prepares for every possible scenario. 

Dimon’s leadership philosophy borrows heavily from military tactics. Among them is military strategist John Boyd’s OODA loop framework: Observe. Orient. Decide. Act. This sense of discipline and ability to move quickly helped JPMorgan navigate the historic acquisition of two failing institutions in 2008, even as most investment banks were scaling back.

What makes Jamie Dimon a remarkable WarTime CEO?

Real-Life Story

Jamie Dimon has often spoken about the need for resilience and adaptability in a VUCAD world, but he is also known for his emphasis on risk management – trimming excesses and streamlining operations – to ensure JPMorgan is prepared for any potential crisis. As a trusted voice in the industry, he has called for higher capital requirements and stricter regulations to prevent banks from heading into financial ruin.

JPMorgan survived the 2008 financial crisis better than most banks did thanks in part to the financial prudence that Dimon champions. 

That same year, the US Federal Reserve requested JPMorgan to rescue two institutions suffering from a severe liquidity crisis. This period would later offer an invaluable lesson for Dimon on balancing risks with rewards.

In March 2008, Bear Stearns teetered on the brink of collapse, crippled by its exposure to subprime mortgage securities. As panic spread, its stock price plummeted from $170 to $2. The Federal Reserve intervened, brokering a deal for JPMorgan to acquire Bear Stearns, and guaranteed $30bn in Bear Stearns’ risky assets. This backing enabled JPMorgan to take on Bear Stearns’ troubled assets while reducing immediate financial risk.

JPMorgan’s acquisition spree continued in September 2008 when it acquired Washington Mutual for $1.836bn after regulators seized WaMu in one of the largest bank failures in US history. 

While these moves strengthened JPMorgan’s position in a volatile market, they also led to substantial legal and financial fallout, including billions in fines. Some came from the mismanagement of mortgage-backed securities that Bear Stearns had invested in.

By 2015, JPMorgan had racked up nearly $19bn in legal costs, with most expenses tied to the two acquisitions.

From the point of view of the US government, the acquisitions aimed to stabilise the financial system and prevent an even larger meltdown. 

While the deals carried significant risks, especially in a time of turmoil, Dimon saw the acquisitions as a way to “support [the] country and the financial system”. Bear Stearns and WaMu each had US$300bn in assets but, beyond the opportunity for profit, the CEO structured the deals being mindful of their impact on the US economy.

The acquisitions came at a steep cost for JPMorgan, but they were strategic moves that bolstered the bank’s market position. Acquiring Bear Stearns expanded JPMorgan’s investment banking operations and provided valuable assets at a reduced cost. The WaMu acquisition, meanwhile, expanded JPMorgan’s retail banking footprint, diversifying its services and increasing liquidity.

Both deals offered cost synergies and regulatory support, strengthening JPMorgan’s balance sheet and market share. 

PostScript: Dimon fosters a WarTime CEO mentality in his leadership style, using the OODA loop to encourage swift decision-making and thorough observation. Planning for a broad spectrum of scenarios, he adopts a proactive approach akin to military strategists in conflict situations. Despite setbacks from the 2008 acquisitions, JPMorgan came out of the financial crisis as the largest bank in the US by assets and deposits.

Key Lessons

1) Developing one’s foresight

WarTime CEOs anticipate potential crises by running through various scenarios and developing adaptable strategies. This foresight allows for swiftly and effectively deciding when unexpected challenges arise.

2) Prioritising risk management

WarTime CEOs balance risk and reward in times of crisis. Implementing stringent risk management practices, such as trimming excesses and advocating for higher capital reserves, ensures organisations can weather financial storms.

3) Acting decisively despite uncertainty 

In volatile situations, WarTime CEOs know decisiveness is essential. Using frameworks like the OODA loop (Observing, Orienting, Deciding, Acting) can help navigate crises and capitalise on opportunities, even when others are retreating.

4) Aligning strategic moves with broader impact 

WarTime CEOs consider the long-term implications of their decisions. Their strategic acquisitions or initiatives support broader stability and growth, even if they come with immediate challenges.

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Until next week, may the force be with you.

Kevin

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