JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon won more investor support this year than in 2012 to remain chairman, weathering a push to divide the roles after the largest U.S. bank suffered a record trading loss.
The proposal to split the duties drew 32 percent of votes, down from 40 percent last year, the lender said yesterday at its annual meeting in Tampa, Florida. The result ends a threat that Dimon might quit and JPMorgan led gains in bank shares, rising 1.4 percent in New York to close at a six-year high.
The vote to back Dimon, 57, who guided JPMorgan through the financial crisis and three straight years of record profit, is a defeat for investors who say companies are better served when they have a separate chairman and CEO. While he keeps both jobs, the vote may spur JPMorgan’s directors to identify a successor and tighten how the board oversees risk after last year’s $6.2 billion “London Whale” trading loss.
“There’s no question they’re going to change the risk committee on the board,” Michael Mayo, an analyst at CLSA Ltd., told Bloomberg Television’s Erik Schatzker in Tampa. The bank could give more authority to lead director Lee R. Raymond, the former chairman and CEO of Exxon Mobil Corp., or split the titles after Dimon leaves New York-based JPMorgan, a person with knowledge of the situation said. The person asked for anonymity because the matter is private.
Dimon, who has held both positions since chairman William B. Harrison stepped down in 2006, solidified his position atop the bank that he molded into the country’s largest with $2.4 trillion in assets. He had told some investors he might resign if the non-binding measure to split his duties passed, according to a person with knowledge of the conversation.
Chief Operating Officer Matt Zames, 42, was promoted at least twice since Dimon tapped the former co-head of fixed income to take on more responsibilities. Other executives once seen as potential successors to Dimon, including Frank Bisignano and James E. Staley, have departed in the past year.
“There’s a big gap between Dimon and whoever his successor is,” said Mark Williams, a former Federal Reserve bank examiner who teaches risk management at Boston University. “One way of assuring job security is to make sure there’s not a viable No. 2.”
The board also faces a possible shakeup, with Raymond saying yesterday that the risk committee may get new faces. “In terms of the composition of the risk committee, you should stay tuned,” he said during the meeting.
One committee member, Ellen V. Futter, president of the American Museum of Natural History in New York, didn’t attend the meeting and came in last among directors with 53 percent voting for her re-election. Other risk panel members included David M. Cote, CEO of Honeywell International Inc., with 59 percent, and James S. Crown, president of Henry Crown & Co., who got 57 percent.
“I don’t think they will keep them in the face of such stark shareholder disapproval,” said Bill Patterson, the former director at advisory firm CtW Investment Group and now a consultant. The group called on Futter, Crown and Cote to quit in a statement after the vote.
The proposal to create an independent chairman at JPMorgan drew more attention after last year’s trading loss at the chief investment office, a unit charged with controlling risk that instead placed wrong-way bets on illiquid derivatives. The positions held by trader Bruno Iksil were so large that he was nicknamed the London Whale. The board partly blamed Dimon for the episode and his pay was cut by 50 percent.
The stumble gave ammunition to lawmakers, investors and former finance executives who say that the biggest U.S. banks are too sprawling and complex to effectively manage.
“The amount of oversight to try to be aware of every risk inside a multi-hundred-thousand-person organization” is too much for one person to manage, said Joshua Siegel, founder of StoneCastle Partners LLC, which invests in community banks and has about $6 billion in assets under management.
Still, even some of those who decried the trading loss have called Dimon a “superstar” and the best manager among large U.S. banks. JPMorgan wooed some of its biggest stakeholders to ensure Dimon received support both in public and in the voting, and Michael Mullaney, chief investment officer at Fiduciary Trust in Boston, said he was “pleasantly surprised by the strength of the voting” in favor of Dimon.
“He’s the best I’ve ever seen,” said Mullaney, whose firm manages about $9.5 billion, including about 300,000 JPMorgan shares, according to data compiled by Bloomberg. “He’s got a remarkable grasp of the business not only from a JPMorgan standpoint but from an entire industry standpoint.”
Dimon survived by showing that JPMorgan could absorb the London Whale loss and still report a record annual profit, said Charles Peabody, an analyst at Portales Partners LLC, in a Bloomberg Television interview with Sara Eisen.
“There are certainly warts and criticisms, and I’ll be the first to point them out,” said Peabody, who said he has sparred with Dimon about proper accounting and recommends selling the shares after their recent advance. “But I think he’s done a great job.”
The AFSCME Employees Pension Plan, among investors campaigning for separation, will keep pressing the bank for a more independent chairman, said Lisa Lindsley, director of capital strategies at the Washington-based union group.
“We do not see this measure as a panacea, but rather a badly needed first step to strengthen the board,” Lindsley told Dimon at the meeting. While Lindsley said the vote wasn’t a referendum on his leadership, she criticized the firm for its lack of succession planning. “No one person should be indispensable,” she said. AFSCME says it represents about 1.6 million members.
JPMorgan (JPM)has advanced more than 20 percent this year, closing yesterday at $53.02. Analysts including Mayo predicted that Dimon’s departure could cause the stock to drop 10 percent or more in the absence of a clearly identified replacement.
“If an operation the size of JPMorgan depends on one person, that is itself a sign of board failure,” said Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor. The company’s lack of rebuttal shows “there is no strong independent lead director, there is no strong special committee or independent group on the board that’s looking out for the interests of shareholders,” he said.
JPMorgan’s priority is developing a “competent and capable successor,” Raymond said. “I hope that time is much into the future and I have no illusions that we will be able to clone Jamie.”
Dimon told the audience that turnover in his top ranks was due in part to the board pressing him to put people in tough jobs to see if they could be future CEOs.
The last time shareholders of a large U.S. bank opted for divided oversight was in April 2009, when Bank of America Corp. (BAC:US) investors voted to strip the chairman’s title from CEO Kenneth Lewis in the aftermath of the Merrill Lynch & Co. takeover and federal bailout. Lewis had no successor in place when he announced later that year he would step down as CEO.
Lloyd C. Blankfein, chairman and CEO of Goldman Sachs Group Inc., avoided a similar vote on his firm’s proxy statement this year by agreeing with CtW to expand the duties of lead independent director James Schiro. A May 2010 vote on whether Blankfein should keep both the chairman and CEO roles, which took place three weeks after the Securities and Exchange Commission sued that firm for fraud, was supported by only 19 percent of the votes. The company hasn’t faced another vote on the matter since then.
Dimon received backing from a roster of high-profile investors including Home Depot Inc. founder Ken Langone, who called him the “finest” CEO in the U.S., and billionaire Warren Buffett, the Berkshire Hathaway Inc. chairman and CEO who has called Dimon’s annual investor letter a must-read.
Raymond and former Johnson & Johnson Chairman and CEO William C. Weldon, who heads the bank’s corporate governance and nominating committee, publicly lobbied for Dimon, writing in their first-ever direct appeal to shareholders that splitting the jobs “could be disruptive” and hurt investors.
Proxy advisers at Glass Lewis & Co. and Institutional Shareholder Services advised investors to vote for a separate chairman as well as to oust some directors.
At the conclusion of the shareholder event, attendees were serenaded with Bruce Hornsby’s 1980s hit, “The Way It Is,” which includes the lyrics, “That’s just the way it is ... some things will never change.”
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