IN 2009, when wounds gouged by the Global Financial Crisis were still raw, Wall Street was widely regarded as a cesspool of greed, deception, excess and ineptitude. Yet, that same year, Wiley and Simon & Schuster each published a book that lionises Jamie Dimon, the head of banking giant JPMorgan Chase.
The books came out within six months of each other – The House of Dimon: How JPMorgan’s Jamie Dimon Rose to the Top of the Financial World was released in April, while Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase hit the shelves in October.
Together, they form a portrait of an extraordinary chairman/CEO who steered JPMorgan to the top while avoiding the pitfalls that brought down many of his rivals. In publicity material for one of the books, he is lauded as “the only man in finance today who can be called an American hero”.
Apparently, American heroes don’t do so well when dealing with whales. In Dimon’s case, his reputation took a beating after a trader, nicknamed the London Whale because of the size of his trades, accumulated large losses through questionable transactions.
What made it worse were the attempts to cover up the mess and Dimon initially dismissing the media spotlight on the London Whale’s big bets as “a complete tempest in a teapot”.
A March 2013 report from US Senate probe sums up the scandal this way: “JPMorgan Chase has consistently portrayed itself as an expert in risk management with a ‘fortress balance sheet’ that ensures taxpayers have nothing to fear from its banking activities, including its extensive dealing in derivatives.
“But in early 2012, the bank’s Chief Investment Office (CIO), which is charged with managing US$350bil in excess deposits, placed a massive bet on a complex set of synthetic credit derivatives that, in 2012, lost at least US$6.2bil.”
These days, Dimon is no longer downplaying the episode. “The London Whale was the stupidest and most embarrassing situation I have ever been a part of,” he wrote in a letter to shareholders that was released last month.
He adds that he takes “personal responsibility for what happened” and apologises to shareholders and others affected by the mistake.
However, the contrition may not be enough to blunt the investors’ ire. At the bank’s annual shareholders’ meeting on May 21, there will be a vote on a shareholder proposal that there be a separation of the chairman and CEO functions. This is not the first time that something like this has come up, but this year, the lobbying is stronger.
Two proxy advisors (firms that are appointed to guide institutional investors on the voting at shareholders’ meetings) have told shareholders that Dimon should be made to choose between the two jobs.
AFSCME Employees Pension Plan, the shareholder that mooted the proposal, says: “We believe the combination of these two roles in a single person weakens a corporation’s governance which can harm shareholder value.”
It adds: “In our view, shareholder value is enhanced by an independent board chair who can provide a balance of power between the CEO and the board, and support strong board leadership. The primary duty of a board of directors is to oversee the management of a company on behalf of its shareholders.
“We believe that a CEO who also serves as chair operates under a conflict of interest that can result in excessive management influence on the board and weaken the board’s oversight of management.”
The JPMorgan board responded by recommending that shareholders vote against the proposal, saying the company’s most effective leadership model currently is that Dimon serves as both chairman and CEO. It provides four reasons:
·The board leadership structure already provides the independent leadership and oversight of management that AFSCME Employees Pension Plan is seeking;
·JPMorgan’s performance under the current board leadership structure has been strong;
·The board’s actions following the losses in CIO demonstrate “strong, independent oversight”; and
·The board has no established policy on whether or not to have a non-executive chairman and believes that it should make that judgment based on circumstances and experience.
Much has been written and said in favour of and to counter the shareholder proposal. One argument against such a change is that many companies that separated the chairman and CEO roles still became poster boys for poor corporate governance. The point here is that the separation is no guarantee of good stewardship.
But that’s like saying we shouldn’t bother installing doors in our homes because so many burglaries happen anyway. A system of checks and balances need to be in place, and separation of CEO and chairman strengthens that system.
Then there is also the contention that when the company splits the chairman and CEO roles, things may not necessarily be better. The JPMorgan warns that the separation “could cause uncertainty, confusion and inefficiency in board and management function and relations”.
This too sounds like a feeble excuse. If the duties and responsibilities of the chairman and CEO are structured well and clearly spelt out, the problems will be minimal.
So what really is the biggest downside to a separation? The JPMorgan board doesn’t say it, but elsewhere, it has been suggested that Dimon is likely to walk out of the company if he is made to report to a chairman.
So, shareholders go into the meeting on May 21 with the uncomfortable prospect of losing him if he’s stripped of the chairmanship. That’s an extremely tough decision to make, but a vote for the proposal sends the message that a good governance structure and stout leadership should not be mutually exclusive.
Hopefully, Dimon believes that too.
·Executive editor Errol Oh thinks that when people are forced to make difficult choices, they appreciate better the outcomes.
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