-
Whatever the outcome of Tuesday's vote over Jamie Dimon's dual titles at JPMorgan Chase, the debate raging at the country's largest bank will increase the pressure on bank boards to split up chairman/CEO roles in the future.
May 17 -
The Chairman/CEO split issue is a sideshow. No one has considered the troubling implications of a large, crazy, lucky bet the London Whale made the year before his infamous money-losing trades.
May 17
JPMorgan Chase (JPM) Chief Executive Officer Jamie Dimon won shareholder support to remain chairman, surviving a campaign to split the roles after a record trading loss at the biggest U.S. bank.
The proposal to divide Dimon's duties won 32.2 percent of the votes, down from 40 percent last year, the bank said today at its annual meeting in Tampa, Florida. Dimon, 57, had told some investors he might quit if the non-binding measure passed, according to a person with knowledge of the conversation, who requested anonymity because the discussion was private.
The vote to back Dimon, who guided JPMorgan to three straight years of record profit, is a defeat for investors who say companies need the balance of a separate chairman and CEO. While Dimon can keep both jobs, the vote may spur JPMorgan's directors to tighten how they oversee the biggest U.S. lender after last year's $6.2 billion "London Whale" trading loss and identify a future successor.
"JPMorgan changes after this annual meeting season, even if all the votes go in the direction" JPMorgan wanted, Michael Mayo, an analyst at CLSA Ltd., told Bloomberg Television's Erik Schatzker in Tampa today. The bank could give more authority to lead director Lee R. Raymond, the former chairman and CEO of Exxon Mobil Corp., or split Dimon's roles after he leaves, a person with knowledge of the matter said.
The board also might alter its own makeup even among those who won re-election, with Raymond telling investors today that the risk committee may get new faces.
"In terms of the composition of the risk committee, you should stay tuned," he said during the meeting.
If directors wind up with less than 60 percent of the vote, "I don't think they will keep them in the face of such stark shareholder disapproval," said Bill Patterson, the former director at the CtW Investment Group advisory firm and now a consultant.
The AFSCME Employees Pension Plan, which was among investors sponsoring the vote to separate Dimon's jobs, will keep pressing the bank for a more independent chairman, said Lisa Lindsley, director of capital strategies at the Washington- based union group.
The proposal drew more attention after last year's trading loss at the London-based chief investment office, which the board blamed partly on Dimon and spurred directors to cut his pay by 50 percent.
"We do not see this measure as a panacea, but rather a badly needed first step to strengthen the board," Lindsley told Dimon at today's meeting. While the vote wasn't a referendum on his leadership, Lindsley criticized the firm for its lack of succession planning. "No one person should be indispensable," she said. AFSCME says it represents about 1.6 million members.
The threat of Dimon's departure caused some analysts to predict the stock could fall 10 percent or more in the absence of a clearly identified replacement.
"If an operation the size of JPMorgan depends on one person, that is itself a sign of board failure," said Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor. The company's lack of rebuttal shows "there is no strong independent lead director, there is no strong special committee or independent group on the board that's looking out for the interests of shareholders," he said.
JPMorgan's first priority is developing a "competent and capable successor," Raymond said. "I hope that time is much into the future and I have no illusions that we will be able to clone Jamie," he said. Dimon attributed turnover in his top ranks in part to the board pressing him to put people in tough jobs to see if they could be future CEOs.
The last time shareholders of a large U.S. bank opted for divided oversight was in April 2009, when Bank of America Corp. investors voted to strip the chairman's title from CEO Kenneth Lewis in the aftermath of the Merrill Lynch & Co. takeover and federal bailout. Lewis had no successor in place when he announced later that year he would step down as CEO.
Lloyd C. Blankfein, chairman and CEO of Goldman Sachs Group Inc., avoided a similar vote on his firm's proxy statement this year by agreeing with CtW Investment Group to expand the duties of lead independent director James Schiro.
Calls for Dimon to cede the chairmanship mounted since last May, when JPMorgan disclosed lapses in risk controls at its chief investment office that led to last year's losses on derivatives. Bruno Iksil, the trader who made the bets, was nicknamed the London Whale because his position was so big.
Dimon received backing from investors including Home Depot Inc. founder Ken Langone, who called the banker the "finest" CEO in the U.S., and billionaire Warren Buffett, the Berkshire Hathaway Inc. chairman and CEO who has described Dimon's annual letter to shareholders as a must-read.
Raymond and former Johnson & Johnson Chairman and CEO William C. Weldon, who heads the bank's corporate governance and nominating committee, publicly lobbied for Dimon, writing in their first-ever direct appeal to shareholders that splitting the chairman and CEO jobs "could be disruptive" and against the best interests of investors.
"An inflexible approach to the question of whether one person can serve as both chairman and CEO is not the right answer," the men wrote in a May 10 letter.
Proxy advisers at Glass Lewis & Co. and Institutional Shareholder Services advised investors to vote for a separate chairman as well as to oust some directors.
Both recommended that shareholders oppose re-election of the three of the board's four risk-committee members, including David M. Cote, CEO of Honeywell International Inc., James S. Crown, president of Henry Crown & Co. and Ellen V. Futter, president of the American Museum of Natural History in New York. Futter was the lone board member absent from today's meeting.
Glass Lewis also had urged shareholders to vote against all three members of JPMorgan's audit committee: James A. Bell, former chief financial officer at Boeing Co., Crandall C. Bowles, chairman of Springs Industries Inc., and Laban P. Jackson, CEO of Clear Creek Properties Inc.
Incumbent directors who fail to win enough votes in an uncontested election must resign immediately, according to JPMorgan's bylaws. The board, through a process managed by the corporate-governance committee, must decide whether to accept the resignation at its next regularly scheduled board meeting, the bylaws show.
