The trading losses – potentially worth in excess of $2 billion – a result of mismanagement of a portfolio of derivatives, have already damaged JP Morgan Chase & Co’s bottom line, and led to the resignation of its Chief Investment Officer, Ina Drew. The damage likely won’t end there, as the Securities Exchange Commission (SEC) ramps up its investigation. The mood is gloomy for JP Morgan – and rightly so. The stock price is down (2 per cent at last check), significant value has been lost (10 per cent at last check), and questions about risk management will continue to bubble.

Critics will say that he was backed into a corner by circumstance, not to mention analysts and investors. And in some ways he was.

But JP Morgan’s chief executive officer, Jamie Dimon, is saying, and doing, the right things to preserve and protect one of the firm’s most important assets, its reputation. As the story broke, Dimon was faced with a huge decision that had wide ranging impacts on JP Morgan’s long term relationship with its public. Following a long line of predecessors who have faced similar crises, Dimon could have retreated behind a legal cloak designed primarily to head off potential class-action lawsuits. Say little, admit nothing.

Managing exposure to legal risk is a business necessity, but it’s not an effective tool for communicating your values, your commitment to your stakeholders (in this case investors), or your willingness to alter your (bad) behaviour and take the necessary steps to re-build relationships and trust. These are the must-do’s for any business facing a crisis in today’s media landscape, where reputations can be trashed irreparably in a Twitter minute.

Dimon chose another path – the mea culpa. He admitted that mistakes were made, that too much investment risk had been assumed, and that he was ready to cooperate with the SEC’s investigation (of course this is no surprise). In so doing, Dimon demonstrated decisiveness and integrity in taking responsibility (with brutal honesty I might add), while beating his critics in shaping the ensuing narrative, and delivering messaging that helped to isolate the management mistakes from the bank’s considerable brand equity, successful track record and public reputation.

Some of the goodwill accrued by JP Morgan prior to this debacle in successfully managing the financial meltdown in 2008 will now be relinquished, and amends must be made. But JP Morgan will come out of this, albeit with scars, not just because it remains sound fundamentally and “Too Big To Fail,” but also because the public will read about and hear from a CEO that understands it made a colossal mistake, and understands that winning hearts and minds through proactive communications is a critical factor to emerging from the current crisis it is facing.

Things will likely get worse for JP Morgan before it finds solid footing. Dimon’s frank admissions may lead to lawsuits. His board of directors hasn’t yet asked for his head, but that too might come. In a game where investor and public confidence has become the critical X factor in shaping the success of a publicly traded corporation, he did the right thing by doing the right thing.

Authored by: Shaun Poole