By Eleanor Bloxham
June 28, 2012

FORTUNE — Amid reports from the New York Times that J.P. Morgan’s London unit trade losses could climb as high as $9 billion, some are wondering whether it’s time to seriously reconsider CEO Jamie Dimon’s fate at the bank.  

“Dimon has either failed to supervise, failed to tell the truth, or both. Pleading ignorance doesn’t help,” Tufts University business professor Amar Bhide told me. Bhide believes the board should fire Dimon, saying Dimon’s tenure can be characterized by “repeated incidents that exemplify an absence of the duty of care, which impacts the public good.”

Some might argue that concern over Dimon’s behavior and J.P. Morgan’s (JPM) activities are overblown. But, according to the recently published Bank for International Settlements’ annual report, while banks may “appear well capitalized,” they “remain highly leveraged,” holding “outsize derivatives positions.” Both high leverage and the use of trading as “a major source of income … are moving the financial sector towards the same high-risk profile it had before the crisis,” the report stated. “Recent heavy losses related to derivatives trading are a reminder of the dangers.”

For now, Dimon isn’t saying whether the losses are still closer to the $2 billion he reported on May 10.

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But OCC head Thomas Curry told the House Financial Services committee that there are “serious risk management weaknesses or failures at the bank.” And Senator Richard Shelby said that “employees at the [chief investment] office apparently thought they were to turn these trades into a profit.”

This picture certainly does not match the bank’s previously popular image or its laudatory statements about its practices. And that’s where the board, the regulators, and you and I come in.

It is easier to swim with the current than against it. Dimon’s celebrity, encouraged by CEO fan boys and girls, has made the job of J.P. Morgan’s board and its regulators tougher. (Consider all the flak the HP (HPQ) board initially took when it fired CEO Mark Hurd.)

Cheers from the crowd make it harder for boards to take tough stances on a CEO’s performance, pay, and succession. But, if left unchecked, CEOs will miss their blind spots — and boards do CEOs a disservice as a result. Without a counter-balance to the fawning from senators, the media, or their own staff, CEOs can easily lose their grounding and begin to believe their own PR. (Al Dunlap, former Sunbeam CEO, was a hero, until he wasn’t.)

Sky-high paychecks and perks, supported by blind shareholders, re-enforce that sense of CEO exceptionalism, which only leads to more problems. Dimon’s pay was tops in the banking world and many said it was well deserved just two months ago. If the company’s governance documents and filings provide any clue, J.P. Morgan’s board does not have a firm hand in succession either. J.P. Morgan declined to comment on its CEO succession plans or the recent congressional hearings for this article.

Boards can grow rusty too. If a board doesn’t  establish its oversight early on, it becomes harder to fire a CEO quickly and efficiently, especially a popular one. And weaker boards are unlikely to have a stellar CEO replacement lined up. It took months for the board at Morgan Stanley (MS) to remove CEO Phil Purcell.

To his credit, in this latest fiasco, Dimon hasn’t overtly asked for special favors. “It puts egg on our face, and we deserve any criticism we get so feel free to give it to us,” he said to analysts during a May 10 conference call. He also admitted that the trading was “poorly monitored and poorly constructed and poorly reviewed.”

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But Dimon doesn’t appear to be personally feeling the heat either. On June 13, following the Senate hearing, he told CNBC’s Mary Thompson that others may be fired, but he also said, “I’m going to be fine. I’m not worried about me.” His top lieutenants don’t expect he’ll be let go either, calling the idea “crazy” and “ludicrous,” according to the Financial Times.

Tallying the missteps

For banks, safety and soundness are next to godliness. And since banks are in the business of trading risk for return, risk management weaknesses are no trivial matter. They’re akin to dangerous vehicle malfunctions in the auto business, resulting from design or manufacture flaws. In a BBC interview, NYU professor Nassim Taleb said that J.P. Morgan has 10 to 15 times the risk of a hedge fund.

“Mr. Dimon personally approved the concept behind the disastrous trades,” according to a Wall Street Journal report and “Dimon encouraged the CIO [chief investment office] to take more risk in search of profits, [so] the unit raised limits on positions and sometimes ignored them,” former executives told Bloomberg. When other senior managers mentioned concerns “about the lack of transparency and quality of internal controls,” Dimon cast it aside, a Bloomberg report stated.

Janet Tavakoli, president of Tavakoli Structured Finance told Bloomberg radio that Dimon should leave, and if we had “regulators doing their job,” they would “thank [him] for his service,” and he would be replaced. It’s a “myth that Jamie Dimon is a good risk manager,” she said, noting that a couple of years ago J.P. Morgan lost “hundreds of millions” due to speculative derivative trading in which they “monopolized the entire global coal market.”

Tufts’ Bhide has his own laundry list of failures on Dimon’s watch, from charges of bribery of Alabama commissioners, non-disclosure to clients, mishandling of customer funds, and robo-signing among other flawed foreclosure processes. What Dimon has done is “much more egregious than selling risky derivatives to Procter & Gamble,” for which “the SEC made Bankers Trust’s life miserable and the board got rid of [CEO Charlie] Sanford,” he argues. The Bankers Trust case represented potential harm to private interests but what has occurred under Dimon’s supervision represents “a threat to the public interest, especially considering that J.P. Morgan is a large, systemically important bank,” Bhide says.

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Bhide also points out that Solomon CEO John Gutfreund was “fired just for delays in reporting bad behavior” to the Fed — and that “Skilling is behind bars” for “puffery” and a failure to be forthcoming.

What was said, and left unsaid

Regulators and investigators will need to determine whether J.P. Morgan’s certification statements around internal controls, and other disclosures, were complete, timely, and accurate, and whether what was said or left unsaid gave investors any wrong impressions.

In his interview with CNBC on June 13, Dimon was adamant that he would report what he wanted to when he wanted to. “I’ve consistently told you I’m not going to tell you [the size of the loss]. On July 13, we’ll tell the shareholders what it was in the quarter… you can ask 100 times and I won’t tell you.” When CNBC’s Thompson asked “At that point, will you put parameters around the size of the loss?” he told her, “Probably. Yeah, probably.” Regarding any clawbacks of bonuses, he said, “I’m not sure we’ll ever tell you … because I’m not sure that is appropriate.”

What comes next?

So will the board fire Dimon? Bhide thinks not, unless regulators twist some arms as they did in days past. Celebrity CEOs often are not often held accountable for their actions. It was sacrilege to suggest that Steve Jobs should be held responsible for Apple’s (aapl) stock options backdating issues, and some would consider it wrong to discuss it now.

So, we shouldn’t kid ourselves. Public opinion matters.

With an actor, an athlete, or a musician, we can see the whole film or attend the whole game or the concert. For CEOs, we see a much narrower glimpse. And that’s why we need good, fulsome disclosure, in good times and bad — and to pay attention to it too.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (, a board advisory firm.

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