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Fri September 20, 2013
Why Companies And CEOs Rarely Admit To Wrongdoing
Originally published on Fri September 20, 2013 10:56 am
RENEE MONTAGNE, HOST:
JPMorgan Chase will have to pay more than $900 million in fines for the way it handled the London Whale trading scandal. Last year, the company revealed that its traders in London had lost $6 billion, and then concealed the losses from executives.
While large fines aren't unusual, it is unusual that federal regulators forced the bank to admit to wrongdoing. But this is exactly what happened. NPR's Sonari Glinton has more.
SONARI GLINTON, BYLINE: Here's a lesson we've all probably learned from our parents: When you're wrong, say you're sorry; fess up, admit it. These are toddler lessons - "Sesame Street," "Mister Rogers." So why do companies and CEOs so rarely admit that they screwed up?
KATHERINE PHILIPS: My cynical answer is, the lawyers won't let them.
GLINTON: Katherine Philips is a professor of leadership and ethics at Columbia's business school. She says one of the main reasons companies like JPMorgan don't usually admit to wrongdoing, is because that will open them to crushing liabilities from plaintiff's lawyers.
But Philips says there's another element at play.
PHILIPS: One of the basic kind of psychological needs of human beings is to save face - right? - and to not look stupid, and not look like they don't know what they're doing. And people who are in powerful positions, and in charge, oftentimes feel that pressure even more so.
JAMES COX: We do not have public stocks anymore, where were we put people in. But we do have the press.
James Cox teaches corporate and securities law at Duke University School of Law. He says the fine was easy for JPMorgan to pay, but the admission sends a message.
That you, too, if you cross the line and violate the law, will be held to the same consequences, and those consequences are a loss of reputation. All the financial institutions are going to be asking: Are we sure that our system is better than JPMorgan's was?
GLINTON: And Cox says now that the government has forced JPMorgan to say it's wrong, it'll have a much easier time with everyone else.
Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.