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Proxy advisers: Dimonised

 

The FT the defender of the proxy advisors.

How to win friends and influence people. JPMorgan Chase boss Jamie Dimon says shareholders are “lazy” and “irresponsible” for letting proxy advisers such as Glass Lewis and Institutional Shareholder Services recommend how they vote at annual meetings. Might this be because the focus at the bank’s meeting this year was on its executive pay after proxy advisers said not enough was tied to performance?

Mr Dimon’s point about proxy advisers is just plain wrong. Yes, a shareholder’s vote is not to be taken lightly. Fund managers have a responsibility to their customers to use the votes entrusted to them judiciously.

But using proxy advisers has its advantages. Fund managers also have a duty to keep their fees to a minimum. Outsourcing, if properly used, can save costs while achieving a similar outcome. Institutional investors have to assess myriad companies both before and after they invest. Some have in-house staff to help the fund managers, but there is no reason they should not buy in the analysis from elsewhere (as they do from brokerage firms and debt rating agencies). Surely Mr Dimon is familiar with the advantages of outsourcing. Or is he suggesting that JPMorgan is so important that it merits more in-house time than other companies?

And there are other advantages. When an institution owns just 1 or 2 per cent of a company, it has limited sway over management. Pooling resources with other shareholders via a proxy adviser is a reasonable way to increase that influence.

Even if Mr Dimon were right, he would be the wrong person to make the argument. It is just a week since the bank agreed to pay $892m of its shareholders’ funds to regulators for abuses of the foreign exchange market — the latest in a long line of fines the bank has paid on Mr Dimon’s watch. Surely he should be focusing on how JPMorgan is run, rather than worrying about how its owners run their own businesses. And besides, JPMorgan’s own asset management business retains the services of ISS.

While Mr Dimon wants shareholders to engage with companies, he knows that individual shareholders acting independently will hold less sway than those operating through proxy advisers. What Mr Dimon shouts for should not be confused with what he really wants.

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