Pension Funds Make Bank Oversight Push

Investor's Business Daily

Hedge fund manager Daniel Loeb is trying to shake up Sony (SNE). Elliot Management succeeded in splitting the CEO and chairman roles at Hess (HES). David Einhorn demanded Apple (AAPL) return more cash to investors.

But it's not just activist investors agitating, especially in the case of big banks. Many pension funds and other traditionally more-passive institutions are mounting a campaign to break up the CEO and chairman posts at JPMorgan Chase (JPM), which holds its annual shareholder meeting Tuesday.

The 2008 financial crisis dramatically changed banks' relations with institutional investors, with harsh public confrontations replacing behind-the-scenes talks. The 2010 Dodd-Frank law helped open the door to shareholder attacks.

"A decade or more ago, things were a lot sleepier," said Kent Hughes, managing director of proxy firm Egan-Jones.

"Most money managers didn't care about the votes. 'If I don't like the management, I'll sell the stock,' they would think. There are still people who feel that way," Hughes said, "but now many are far more discerning.

Proxy Firms, Pensions Agree

JPMorgan shares hit a six-year high Friday. But big investors have been unhappy with its leadership since the London Whale fiasco cost the bank $6.2 billion. Proxy advisers Glass Lewis and ISS recommended that shareholders vote to split Jamie Dimon's roles as CEO and chairman.

"An independent chairman is better able to oversee the executives of a company and set a pro-shareholder agenda," Glass Lewis argues in its proxy report.

Calpers is expected to vote in favor of splitting the top posts. The California public pension giant first voiced its concern with Dimon's dual roles in 2010 and voted in 2011 to split them.

AFSCME Employees Pension Plan, the Connecticut Retirement Plans & Trust Funds, Hermes Equity Ownership Services and various New York City pension funds issued a shareowner proposal calling on JPMorgan to name an independent chairman.

Dimon has threatened to quit if he is removed as chairman.

Companies have been leaning toward splitting the top spots. Only 12% of incoming CEOs in 2012 were also named chairman, according to a report by consulting firm Booz & Co. That was the lowest since 2009.

Some analysts think the JPMorgan vote to split roles, which wouldn't have had a chance in prior years, will be close.

"Activist votes can actually change things," said David Larcker, a corporate governance professor at the Stanford Graduate School of Business. "Before if you got a few votes in favor of things, that was good but it didn't have a lot of impact. Now it's much more serious.

Larcker said proxy recommendations like those from ISS and Glass Lewis can swing 20% to 30% of the vote.

Other Banks Questioned

If Dimon, long seen as Wall Street's best boss, loses Tuesday, it would likely embolden big investors at other banks and major companies.

JPMorgan isn't the only bank to have its leadership questioned.

Goldman Sachs (GS) executives were just given an embarrassing D grade by Glass Lewis.

In March, CtW Investment, which works with union pension funds, called for Goldman to split its CEO and chairman posts. The SEC blocked the investment bank's bid to keep the vote off its proxy statement.

In April, CtW dropped its push after Goldman agreed to beef up the role of its lead independent director.

"Investors have been concerned about accountability after the financial crisis. (But) people have been pushing this (splitting roles) for a long time," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "The financial crisis did add fuel to the fire, but I think it had begun a long time ago.

In 2012, Citigroup (C) holders, including Calpers, rejected a board-approved pay boost for CEO Vikram Pandit. In October he quit under pressure from the board.

Larcker said institutional investors have always been vocal but their concerns with bank management have gained traction due to the sluggish economy.

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