The pressure is increasing on JP Morgan CEO Jamie Dimon to give up his other role as chairman of the bank’s board. Proxy advisory firm Glass Lewis said today that JP Morgan shareholders should vote for a proposal for an independent chairman. The recommendation puts more pressure on JP Morgan to reach a compromise to avoid an embarrassing shareholder vote.
Calls for Dimon to give up his board chairman position have increased since the bank’s embarrassing $6.2 billion trading loss known as the London Whale. Both Glass Lewis and fellow proxy advisory firm Institutional Shareholder Servies (ISS) said the board was lax in its oversight role. ISS said the magnitude of the loss revealed “multiple points of failure” at the bank.
Before the London Whale, Dimon was seen as essentially untouchable among the big bank CEOs. But his reputation has been tarnished by the trading scandal, and the findings of a Senate investigation in March further damaged the bank. US senator Carl Levin harshly criticized JP Morgan, saying the London Whale involved “hidden losses, bank executives downplaying the bad bets.”
Still, JP Morgan’s most recent earnings topped analyst estimates, with net income up more than 30%. And its share price has recovered since the trading loss was revealed last May, up by about 50% since then. JP Morgan says retaining the board chairman role for Dimon is the most effective leadership structure. One analyst even brought up the prospect of Dimon leaving the bank if he is stripped of the chairman title.
But some JP Morgan investors agree with the recommendation to separate the CEO position from the board chairman role. Other large shareholders are reportedly undecided, but had sided with JP Morgan in the past. An independent report on Barclays, commissioned in the wake of the interest rate rigging scandal at European banks, notes that the board chairman plays a critical role in establishing an atmosphere where differing views are welcomed.
There has been similar pressure at Goldman Sachs, where CEO Lloyd Blankfein is also chairman of the bank’s board. But the bank decided to compromise with shareholders this year before a vote on splitting the CEO and board chairman roles. Goldman agreed to expand the powers of the lead independent director, James Schiro. The board directors who do not work for Goldman will also meet more often. As a result, Blankfein got to keep his chairman title.
JP Morgan could make a similar compromise if the bank thinks the vote on the chairman role is going to be close at its annual meeting on May 21. Or Dimon could give up the chairman position altogether. Even though it’s a non-binding proposal, losing a shareholder vote is something companies usually try to avoid. Last year, a similar shareholder vote at JP Morgan received 40% approval from shareholders. It looks like this year, that proposal will get even more support.
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