In 2006, during Jamie Dimon’s first year as JPMorgan Chase & Co.’s chief executive officer, a proposal on the company’s proxy statement called for separating the bank’s CEO and chairman positions. It received 38 percent of the votes. And back then, JPMorgan already had someone else as its chairman: William Harrison, Dimon’s predecessor as CEO.
Dimon got the chairman’s title later that year. Almost every year since, there has been a nonbinding shareholder proposal calling for the jobs to be held by different people. Last year’s version got 40 percent of the vote. This year’s initiative might get that much support or more at JPMorgan’s annual meeting on May 21 in Tampa, Florida.
JPMorgan knows this. News reports last month said company executives and directors were lobbying large shareholders to vote against it. The labor-union pension plan behind this year’s ballot question has said it wasn’t meant as a referendum on Dimon’s leadership. But that’s how it is playing out, spurred by last year’s London Whale trading debacle, which caused the bank $6.2 billion of losses and exposed a lack of risk-management and financial-reporting controls at the company’s highest levels.
Dimon could end this needless drama in one stroke: Hand the chairman post to someone else. Dimon, 57, would lose little by giving up the title. He probably would draw public praise for showing humility, rather than letting his ego drive the outcome. The company operated fine when it had different people in the two jobs. For Dimon, the extra designation shouldn’t be worth fighting for. Doing so turns the issue into something bigger than it should be.
The chairman’s job at JPMorgan is partly ceremonial anyway. Since December 2006, when Dimon became chairman, the company has had a “presiding director.” Currently it’s Lee Raymond, 74, the former chairman and CEO of Exxon Mobil Corp. The presiding director approves board-meeting agendas, schedules and materials. He can add agenda items. He officiates over meetings of JPMorgan’s nonmanagement directors. And he can convene those meetings himself. (Dimon is the only JPMorgan executive on the company’s 11-member board.)
The presiding director also facilitates communication between Dimon and the other board members. If Dimon wasn’t chairman, he would report to the same people as CEO anyway. In its proxy statement last month, JPMorgan said forcing Dimon to give up the chairman’s post “could cause uncertainty, confusion and inefficiency in board and management function and relations.” If anything, the present structure is more confusing -- with Dimon in charge of JPMorgan’s board, but not really.
The arguments for separating the chairman and CEO jobs at public companies usually center on the idea that CEOs shouldn’t be their own bosses. In other words, they answer to the directors, so they shouldn’t be running the boards, too. The typical counterargument, made by JPMorgan and others, is that boards should make such choices on a case-by-case basis, and that a strict prohibition on one person holding both positions doesn’t make sense.
JPMorgan isn’t a normal company, of course. With $2.4 trillion of assets, it’s a massive contingent liability the rest of the country would be on the hook for if the bank ever blew up. For that reason, JPMorgan’s directors should show they are serious about proper governance, especially after the Whale disaster at the bank’s chief investment office in London.
In a supervisory letter last year, the U.S. Office of the Comptroller of the Currency concluded that JPMorgan’s “board and management failed to ensure that CIO management was properly supervised, and that an adequate risk management and control infrastructure was in place.” In March, a report by the Senate Permanent Subcommittee on Investigations criticized Dimon for misinforming investors and regulators during the trading scandal’s early days. The report also strongly suggested that JPMorgan’s disclosures may have violated federal securities laws.
The trading losses might seem small compared with the bank’s $21.3 billion of earnings for 2012. But JPMorgan and Dimon both suffered significant reputational damage. Dimon took a 50 percent pay cut in 2012 to $11.5 million, as if this were a serious penalty for someone who owns $278 million of his company’s stock. The board has done hardly anything to show accountability for its own organizational failings. Switching out its titular head is common sense.
While this may not be an easy pill for Dimon, forfeiting the chairman’s title would be a sign of strength, not weakness. All he would have to say is that it’s for the good of the bank, and people would believe him, because it would be true. Sometimes strong leadership means knowing when to exercise less of it.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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