The main item of business before JP Morgan Chase’s annual shareholder meeting, which will convene today in Tampa, is whether JPM CEO Jamie Dimon will be stripped of his additional post as chairman of JPM’s board of directors. A range of institutional investors concerned about the over-concentration of power atop the nation’s most powerful institutions, and upset by the $6 billion loss JPM took last year at its London trading desk, won roughly 40 percent shareholder support last year to separate the two positions. This year, they hope to do better, even though the bank’s public-relations offensive on Dimon’s behalf has made the prospect of winning a majority more difficult.
Dimon—the closest thing America has to a celebrity banker—was the one major financier whose reputation came through unscathed in the 2008 financial meltdown. JPM had steered clear of the worst of the mortgage market, and had managed its risks well enough so that, alone among the nation’s leading banks, it was never really in peril. Since then, however, the “London whale” happened. That massive 2012 loss, which Dimon had initially dismissed as “a tempest in a teacup,” has called into question the bank’s risk management capacities. Most of Dimon’s leading lieutenants have now left JPM, and the bank is currently under investigation by at least eight federal agencies, including one investigation by the Office of the Comptroller of the Currency over the bank’s pursuit of customers with overdue credit card bills.
JPM has responded with an all-out defense of Dimon as the indispensable man. This week’s Bloomberg BusinessWeek has a laudatory Dimon profile that highlights the bank’s record profits.
“JP Morgan has made this a popularity contest about Jamie,” says Lisa Lindsley, Director of Capital Strategies at AFSCME, many of whose members’ retirement savings are managed by public pension funds invested in the bank. “But that’s not what this is about. It should about the best way to exert oversight over a major company.”
Increasingly, institutional and other shareholders are voting to separate the roles of CEO and board chairperson, in the belief that fusing the two roles in one person reduces the independence of the board and limits its capacity assess the company’s, and the CEO’s, performance. According to a statement by a coalition of institutional investors in JPM, including AFSCME and the pension funds of Connecticut and New York City,
“An independent board chair has been found in academic studies to improve the financial performance of public companies. A 2007 Booz & Co. study found that in 2006, all of the underperforming North American companies with long-tenured CEOs lacked an independent board chair (The Era of the Inclusive Leader, Booz Allen Hamilton, Summer 2007). Another study found that, worldwide, companies are now routinely separating the jobs of chair and CEO: less than 12 percent of incoming CEOs were also made chair in 2009, compared with 48 percent in 2002 (CEO Succession 2000–2009: A Decade of Convergence and Compression, Booz & Co., Summer 2010).”
As events would have it, the independent directors currently serving on the JPM board almost surely don’t adhere to the new, more prudent custom of separating a company’s two top jobs. That’s because six of the ten independent directors are either currently serving or once served as the joint CEO-Chairmen of their respective companies: Lee Raymond of Exxon Mobil (JPM’s lead director), Crandall Bowles of Spring Industries, David Cote of Honeywell, Timothy Flynn of KPMG, Laban Jackson of Clear Creek Properties and William Weldon of Johnson & Johnson. The very notion that separating the two jobs is a prudent practice must strike them as an existential rebuke.
Institutions that are designated as too-big-to-fail—a list that JPM, with more assets than any other bank, clearly tops—are almost surely too big to govern, as the London Whale episode demonstrated. The best solution would be for Congress to enact the legislation introduced by Senators Sherrod Brown and David Vitter to break up such banks. Short of that, those institutions need to be handled with exceptional care, and the shareholder resolution before JPM’s meeting today is a good place to start.