At Issue: A 'Major Potential Embarrassment' or 'Just Good Business Sense'.

[ by Howard Haykin ]

JPMorgan Chase is doing everything in its power to avoid what some refer to as a "major potential embarrassment."

[C-I Note:  We have a tough time grasping the concept that deciding to split the JPMorgan Chairman and Chief Executive roles can, in some way, be embarrassing.  To read our thoughts on that aspect, go to our 4/8/13 story in Perspectives.]

JPM Board members, in anticipation of a crucial vote at this month’s annual meeting, are planning to sit down with some of the bank’s biggest shareholders to make their case that Jamie Dimon should retain his dual roles.  A few big shareholders can make a difference in either direction.  Last year, about 40% of JPMorgan investors supported a proposal to split the roles.  

What a Difference A Year Makes.   To say the action by the Board is unusually proactive is an understatement.  The fact that the Board is implementing such strategic measures over this questions reflects their concern that investors have become dissatisfied with management because of the continuing fallout from the 'London Whale' multibillion-dollar trading loss.

And JPMorgan Directors and Bank Officials will say that this matter must be viewed as it pertains to the financial industry, at large, and not as an issue that relates solely to JPMorgan's internal governance - as if it resides in a vacuum.  According to Dealbook, voting to split the roles would send a powerful message - because few big banks have separated the chairman and chief executive positions.  When a separation does occur, it generally has been done in the context of a broader management shake-up - as in the case of Bank of America and Citigroup.

Some of the bank's largest shareholders recommend that JPMorgan separate the two senior posts, saying that it's not a bad thing because there is more accountability.”  Others, including some that voted to keep the roles together last year, remain undecided.  Finally, there are those supporting a status quo - i.e., permitting Jamie Dimon to continue serving in both roles - given the fact that, in comparison to its peers, JPMorgan has done “arguably the best job.”

Non-Binding Vote.   Keep in mind that a shareholder vote in favor of splitting the positions would not be binding - although it admittedly would put pressure on the board to follow that course.  Such a vote also would indicate that many shareholders had lost faith in Mr. Dimon, 57 - quite a precipitous fall for an executive who successfully steered the bank through the turmoil of the financial crisis.

The idea of splitting the chairman and CEO roles took on added significance earlier this year - in February, when a group of JPMorgan shareholders filed a resolution to divide the chairman and chief executive posts. Since then, those investors have been working to gather support for the proposal.  One supporter of the proposal, Connecticut state treasurer Denise Nappier, said, “We don’t believe the person responsible for these costly mistakes should be overseeing reforms."

Board Takes Action to Flex Its Muscles.   The board, including the lead independent director, Lee Raymond, former CEO of Exxon Mobil, has been trying to flex its muscle in recent months.  In January, directors voted to slash Mr. Dimon’s pay by more than 50% to $11.5 million, in response to the trading loss. 

But ultimately the board supports Mr. Dimon.  In March, directors indicated in the proxy filing that he should keep the chairman and CEO titles, encouraging shareholders to vote against the proposal. “The board has determined that the most effective leadership model for the firm currently is that Mr. Dimon serves as both,” the board said in the proxy filing.

And then there's the question of succession planning.  What two individuals, at present, are in position to step into the roles currently occupied by Mr. Dimon?  

It is hard to predict the outcome of the vote.

For further details, go to:   [Dealbook, 4/5/13].