Board Oversight of Risk Management: Valuable Guidelines from JPMorgan Chase
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-04-05
The current public controversy notwithstanding, valuable governance lessons arise from JPMorgan Chase’s internal analysis of the highly public 2012 losses in its synthetic credit portfolio; the saga of the so-called “London Whale”. The internal JPMorgan analysis should not be confused with the March 15 report on the “Whale Trades” issued by the Senate Permanent Subcommittee on Investigations.  Neither should its credibility be undermined by the Subcommittee’s critical report.
JPMorgan’s primary findings were contained in an exhaustive report of the trading strategies and management activities that led to these losses, prepared by a management task force.  Additional findings and recommendations were included within a much shorter companion report prepared by the board’s Review Committee. This companion report concentrated on the board’s risk oversight practices.  To a certain extent, the “sizzle” was contained in the lengthier management task force report, with its focus on what happened, why it happened, and who was to blame for it happening. But from a governance perspective, the lessons for corporate America are in the companion report, with its focus on improving the process by which risk information is reported to the board. These governance recommendations are highly relevant today, because the broader fiduciary landscape has been dominated of late by concerns about the quality of board oversight of risk.