Jamie Dimon may be both feared and idolized on Wall Street, but institutional investors seem to be falling out of love with the king of JPMorgan (JPM).
Self-styled corporate governance experts from groups like Institutional Shareholder Services (ISS), the California Public Employees' Retirement System (CalPERS) and the Illinois State Board of Investment (ISBI) have all announced that they will vote in favor of separating the roles of chairman and CEO at JPM. If the groups have their way, Dimon will be stripped of his chairman title but retain his role as CEO.
The split of the chairman and CEO roles is something of a crusade for institutional investors, the idea being that a chairman should be a check on the CEO's power to control a corporation's agenda. JPM is being targeted, in particular, as a reaction to the "London Whale" debacle of 2012.
James Altucher, editor of Altucher Confidential, questions the timing and motivation of the institutional funds, while pointing out the absence of similar outrage on the cusp of the financial crisis when investors could have used some help. "Where were they in 2007 on Lehman Brothers when shareholders actually needed them?"
Plenty of people didn't see the meltdown coming. Less forgivable is the fact that the groups have no evidence that splitting the roles of chairman and CEO actually helps shareholders. The bare minimum qualification for those with a legal responsibility to protect retirees' money should be some sort of evidence that their proposals make sense.
ISS is pushing for a change of directors, as well. Specifically, they want to oust David Cote, CEO of Honeywell (HON) and head of JPM BOD's Risk Policy Committee. "They want to get rid of operators who are actually independent," Altucher says in defense of Cote. "ISS is saying, somehow let's change that. So what does ISS know?"
Since the London Whale was the only person who seemed to have any real clue as to what was happening in JPM's risk department, by logical extension said Whale should have earned himself a seat on the board.
The problem at mega banks is structural. There isn't an outside director anywhere who could have been expected to recognize the risk on JPM's books. The problem is that the risk is unknowable given the size of the hedges in place. It wouldn't matter who was on JPM's board in the run-up to the Whale incident. No outside director would be qualified to do the forensic accounting required to investigate JPM's hedges on a quarterly basis.
Dimon runs JPMorgan. Unless and until the company starts failing operationally, ISS could insist on changing Dimon's title to head dishwasher and nothing would change. The greatest disservice pension guardians can do is to feign control and expertise when they don't have either.
There's no evidence that splitting the roles of chairman and CEO does anything to improve corporate operations. Giving pensioners the illusion of increased safety is a greater offense than doing nothing at all.
- Investment & Company Information
- Jamie Dimon
- James Altucher
- institutional investors