J.P. Morgan and the SEC Naysayers

By now you probably know that the U.S. government is investigating J.P. Morgan for violations of the FCPA. To recap, the SEC alleges that J.P. Morgan hired the children of Chinese government officials for the purpose of gaining a business advantage.

Once the initial furor died down, I started to see articles that wished the SEC “good luck” in proving that J.P. Morgan did anything wrong. The authors of these articles imply that the SEC is trying to make nepotism illegal, and the one I read most recently uses the character Pete Campbell from “Mad Men” as an example. Pete Campbell is hired and saved from being fired at the advertising agency because of the access that his wealth and privilege afford him to influential people who make decisions about which advertising agency their companies will use. One of these people is his father-in-law, whose company purchases services from Pete’s firm.

Here’s the thing, though. Setting aside for a moment that Pete’s father-in-law is not a government official, this kind of behavior isn’t ok in the U.S., either. It may not trigger an SEC or DOJ investigation. But it’s certainly going to get the attention of the Chief Compliance & Ethics Officer and the General Counsel, because the behavior I’ve summarized above is a violation of the conflicts of interest policy and the Code of Business Conduct of most companies (including J.P. Morgan’s). There probably wouldn’t be a government investigation, but Pete Campbell’s father could lose his job.

The better example in the U.S. is when high-ranking military folks retire and then go work for government contractors, like Boeing or Booz Allen (where I once worked). Companies leap at the chance to hire these folks at big salaries because of the contacts they have and their deep understanding of the internal infrastructures and politics that determine who will win a contract. This is legal, and it happens all the time. The difference is that there are strict rules governing who wins a contract. And while some of the reasoning underpinning those decisions may fall in a gray area, the companies that win contracts are arguably the most qualified companies for the project according to the requirements of the RFP. In addition, the retired military folks have the required qualifications to do their jobs. When we don’t see the RFP process unfold the way it’s supposed to or when the people who are hired don’t have the requisite qualifications, we tend to see those stories on the front page of the Washington Post.

We don’t have the full story yet on J.P. Morgan, but I wouldn’t be as sanguine about the SEC’s ability to find proof that J.P. Morgan did something wrong as some other folks have been. If the sons and daughters that were hired don’t have the qualifications to do their jobs; if exceptions were made in the usual hiring process to bring them into the company; and if the process by which J.P. Morgan got business from the parent Chinese government officials was not the usual process, then the naysayers might need to revise their view of the world.

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