NEW YORK, N.Y. – Jamie Dimon, chairman and CEO of the country’s biggest bank, faces a key test this week: His shareholders are voting on whether to let him keep both jobs.
It’s been just more than a year since his bank, JPMorgan Chase, revealed a surprise trading loss that tarnished its usually stellar reputation in Washington and on Wall Street, and what a difference it has made. Shareholder groups are calling for the bank to strip him of his chairman job, a move that would be a bruising referendum against a man who’s normally chieftain even among other big-bank CEOs. They’re also lobbying to kick out multiple long-time board members, saying they should have done more to detect or prevent the trading loss.
In all, it’s a powerful reminder of how fortunes can quickly shift in the banking industry, and how banks, supposedly chastened by the financial crisis, are still stumbling through regulatory and legal crises.
On Tuesday, at the bank’s annual meeting in Tampa, Fla., union group AFSCME, the New York City Comptroller’s Office and other fund managers will ask bank shareholders to approve a proposal asking JPMorgan to split the roles of chairman and CEO, and to give the chairman job to someone who isn’t a bank employee. The underlying idea is to install stricter checks and balances against Dimon and other top bank executives.
A similar measure got 40 per cent approval at last year’s meeting, which was held just days after the bank announced the so-called London whale loss. In the previous six annual meetings where Dimon has been both chairman and CEO, shareholders have been asked about separating the roles four times, and last year marked the highest level of votes in favour of the idea. In 2007 and 2008, only about 15 per cent of shareholders voted for similar measures.
“Even a Master of the Universe can be swallowed by a London whale,” said AFSCME president Lee Saunders. The loss is nicknamed for the location of the trader who made the outsized bets on complex debt securities that went wrong, eventually losing the bank $6 billion.
Both Glass Lewis and Institutional Shareholder Services, two influential firms that give advice to big shareholders, are recommending that the jobs be split. Glass Lewis is also recommending getting rid of six of the 10 independent board members, and ISS recommends booting three.
The board has defended Dimon. It says that keeping him in both jobs is its “most effective leadership model.” It’s an arrangement that they are used to: Six of the 10 independent board members are or have been the simultaneous chairman and CEO of other businesses. Lee Raymond, who is No. 2 on the board behind Dimon, is the retired chairman and CEO of Exxon Mobil.
The board also points out that JPMorgan has done well under Dimon, who guided it through the financial crisis and nursed it to emerge as one of the strongest banks in the country. It says it meets regularly without him and has taken steps to clean up the practices that caused the trading loss, including cutting Dimon’s 2012 pay — down 19 per cent to $18.7 million, according to Associated Press formulas for executive compensation, though the bank calculates that it cut his pay by half.
At an investor conference in February, Dimon dismissed the groups lobbying to separate the jobs as “all the union investors,” and called the debate “a sideshow.” He also said that he wouldn’t have gone to Bank One, a troubled Chicago bank that he took over and turned around in the early 2000s, if the bank hadn’t given him the leeway to be both chairman and CEO. “Troubled company, big turnaround, divided board?” he said. “Not me. Life is too short.”
It’s not clear what would happen if shareholders vote to take away Dimon’s chairman job. The proposal is non-binding, so technically the bank doesn’t have to follow it. In 2009, shareholders at Bank of America voted to split the jobs, and the bank took away the chairman title from chairman and CEO Ken Lewis. Later that year, he resigned from the bank entirely.
Last year, shareholders at just four U.S. companies voted to split chairman and CEO roles, according to ISS. So far this year, shareholders at only one company, department store chain Kohl’s, have voted to separate the jobs.
At a public company, the board is essentially supposed to be the boss of the CEO, hiring and firing him and reining him in from risky practices that could hurt shareholders. Shareholder activists say that if the CEO is also running the board, then the board can hardly police him. Many companies argue that the CEO knows the company better than anyone and is best equipped to run the board as well.
Dimon, 57, a native of Queens and grandson of a Greek immigrant, is an essential player in banking’s world order. During a time of increased public anger against the industry, and as some of his peers tried to fly under the radar, he was outspoken, defending big paydays for bankers and criticizing some of the government’s proposed new rules for the industry. He was President Obama’s confidante in the banking industry, and then the banking leader with the guts and credibility to challenge him.
“He’s obviously a brilliant executive,” said Brandon Rees, acting director of the investment office at the AFL-CIO, a union group that supports splitting the roles. “But it’s a rare quality for brilliance to be accompanied by lack of hubris.”
Not everyone thinks that getting rid of Dimon would be best for shareholders. CLSA analyst Mike Mayo predicts that the stock would plunge 10 per cent, noting there’s no obvious successor. Nomura analyst Glenn Schorr, writing to clients last week after a meeting with Dimon, said he found it “fascinating” that investors were considering “shrinking the role of one of the best managers there’s ever been in the business.”
What everyone agrees on is this: From a public relations perspective, it’s been a tough year at JPMorgan Chase & Co. Many of Dimon’s highest-level executives have departed, including co-chief operating officer Frank Bisignano, who left in April to become CEO of payment processor First Data. The bank is also under extra scrutiny from regulators who are examining not only the trading loss but also the bank’s foreclosure practices, its controls for preventing money laundering and other areas.
“Let me be perfectly clear: These problems were our fault, and it is our job to fix them,” Dimon wrote in the annual letter to shareholders this year. “In fact, I feel terrible that we let our regulators down.”