The bank’s shareholders prefer to keep the devil they know
May 25th 2013 | NEW YORK |The Economist - From the print edition
ON THE face of it, the question seemed a simple one of corporate governance: should JPMorgan Chase, America’s biggest bank, split the roles of chief executive and chairman? But the stakes were much higher, which explains why, after weeks of noisy debate, two-thirds of shareholders rejected a motion to that effect at their annual meeting on May 21st.
It was not the first time the question had been posed. Last year a similar motion was considered—and received 40% of the vote. But this year’s poll was much more contentious. A multi-billion-dollar loss as a result of outsized trades by an employee known as the “London Whale” had made Jamie Dimon, holder of both titles (pictured), vulnerable to attack.
Although advocates of the motion to split Mr Dimon’s roles insisted that they were not out to get him, he was clearly the main focus of the debate. A strong and decisive manager, Mr Dimon has shaped JPMorgan’s strategy and thus its remarkable success. But his willingness to criticise the chaotic regulatory structure imposed on banks after the financial crisis has exposed him to political retribution. And the sheer size of JPMorgan makes people cautious about risks within the institution and its leadership.
Mutual funds and shareholders with interests closely tied to returns overwhelmingly supported Mr Dimon, fearful that a vote in favour of the split would weaken his authority or, worse, precipitate his departure. Estimates of what such a move would do to the bank’s share price were a source of much discussion. Most thought the price would fall by more than 5%. When the results of the vote were announced, the bank’s shares jumped 2%.
The motion was sponsored mostly by entities with a more political bent: two municipal pension funds, New York City’s and Connecticut’s, and the American Federation of State, County and Municipal Employees, a union of public-services employees, as well as Hermes, a British fund manager. It also gained support from Institutional Shareholder Services (ISS), a consultancy that advises many institutional investors. ISS’s recommendations are often accepted without a second thought.
That they were ignored this time is a reflection of what was in play. By supporting Mr Dimon, the shareholders in JPMorgan Chase most concerned about returns did not just dismiss a fashionable idea. They also drew a distinction between how they manage money and the approach of public-sector groups whose low returns are often augmented by taxpayers. In other words, they rejected one split but highlighted another.
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