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Are Two Hats Too Many for JPMorgan's Jamie Dimon?

By Paula Dwyer
February 20, 2013 4:40 PM EST

Should Jamie Dimon, the chairman and chief executive officer of JPMorgan Chase & Co., give up his chairmanship?

A public employee labor union and several large public pension funds think so. They are joining hands to pressure the largest U.S. bank by assets to separate the CEO and chairman jobs, both of which Dimon has held since 2006. They want the bank to add the issue to the resolutions to be voted on at the annual shareholders' meeting in May.

JPMorgan is likely to oppose the resolution, as it did last year when a similar one garnered 40 percent of the votes cast at its May 15 annual meeting. As far as shareholder resolutions go, that's a high number. Most get only in the low teens, and rarely do they top 50 percent.

This year, the proposal just might surpass 50 percent because of last year's $6.2 billion in trading losses, the extent of which weren't known until after most shareholders had voted.

Even so, the resolution is nonbinding. Dimon would be under no obligation to give up his chairmanship, but the vote could be acutely embarrassing.

The bank's losses grew out of wagers on credit derivatives made by JPMorgan's chief investment office in London. The trader who amassed the position came to be known as the London Whale because his bets were so huge. A January 2013 internal report said employees were overwhelmed by the complexity of their trades and that risk managers were ill-equipped to monitor or even understand the wagers. Managers, including Dimon, weren't aggressive enough with their responses once the extent of the trades was revealed, the report said. The board cut Dimon's pay in half, to $11.5 million, as a result.

Shareholders wondering how to vote on a resolution to split the top jobs might want to consider a June 2012 study by GMI Ratings, which evaluates public companies' governance. An analysis of 180 large North American corporations found that CEOs who also wear the chairman's hat are more expensive than their CEO-only counterparts. Executives with both titles received a median total compensation of $16 million, versus $11 million paid by companies where the CEO and chairman were separate.

The executives with dual roles were also associated with significant indicators of risk. For example, they were 86 percent more likely to register as “aggressive” in GMI's assessment of their financial reporting. Their companies also showed a greater risk of defaulting on debts, laying off employees, selling assets, restructuring or taking other steps to deal with a weakened financial condition. Companies with independent outside chairmen were less risky in several categories, including problems with Securities and Exchange Commission filings.

The chairman/CEO combo is popular in the U.S. As Nell Minow wrote for Bloomberg View last June, 281 of the S&P 500 companies combine the top jobs. At 110 others, the chairman is a former executive or has some other connection to the company. The result, says Minow, is that most U.S. board chairmen lack independence or accountability. In the U.K., by contrast, almost every board has an independent, outside chairman.

The Council of Institutional Investors calls the dual roles “a fundamental conflict of interest.” Over the past decade, the idea of an independent “lead director” has become a popular compromise. That is the structure adopted by JPMorgan, where Lee R. Raymond, the former chairman and CEO of ExxonMobil Corp., has been the lead director, presiding over board meetings held without managements' presence, as required by post-Enron reforms. But a lead director isn’t the same as an independent chairman, who sets the agenda and committee assignments, oversees executive compensation and presides over all meetings.

The coalition seeking the resolution includes the employee pension fund of the American Federation of State, County and Municipal Employees; the Connecticut Retirement Plans and Trust Funds; Hermes Equity Ownership Services, and the New York City pension funds. 

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)

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