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May 21, 2013

Dimon’s Reelection Is Bad for JP Morgan, its Shareholders, the US Financial System and Taxpayers

 

JP Morgan Chase CEO and Chairman of the Board, Jamie Dimon, “won” his months-long battle to keep both positions and continue to supervise himself at America’s largest bank.  While it was a victory for him personally, it came at a great cost.  Mr. Dimon and the Board should be ashamed that they had to pull out all the stops, reportedly break the rules, and basically blackmail and strong-arm shareholders with threats to “win” this vote.

Common sense, real leadership, and an independent Chairman of the Board could have and should have avoided this needless high-profile ego trip to keep both positions.  A modest and painless accommodation on this advisory vote would have avoided all of this, as other banks have demonstrated.  More importantly, it highlights the failure of this Board to act as a check on Mr. Dimon and to fulfill their most fundamental duty to the bank:  ensuring that there is someone capable to run the bank if the current CEO isn’t there for whatever reason.

It was reported that veiled and not-so-veiled threats were made that the CEO would quit if he didn’t get to keep both positions.  Such threats are like blackmail: do what I want or else.  The “or else” is extremely important to shareholders because of the speculation that Mr. Dimon’s departure might cause a significant stock sell off and cause the stock price to drop.  But, such threats to quit, if they were made, only have weight if the Board has not ensured an appropriate succession plan.

Making matters worse, it was reported that JP Morgan changed its rules and stopped providing information to shareholders on the vote tallies.  This enabled JP Morgan alone to target shareholders who had not voted or who had voted the “wrong” way.  It was also reported that the Attorney General of the State of New York had to intervene to get the bank to reverse its decision to change the rules and to get it to again provide shareholders, who are supposed to be the owners of the corporation, with the information the bank was withholding.

Is that really how the largest bank in the United States should act?

This is incredibly important not just to JP Morgan Chase, but to everyone in the United States because JP Morgan Chase is the biggest US bank with more than $2 trillion in assets and it is engaged in numerous very high risk activities.  The recent $6 billion loss from the complex London Whale derivatives trading, and the more than $20 billion in market capitalization losses it caused, starkly demonstrates that.  JP Morgan also reportedly faces more than eight ongoing federal investigations into its activities and it continues fighting sensible financial reform and financial regulators.  As a recent report detailed, this is on top of the more than $8.5 billion (almost 12% of its net income) in regulatory settlements and penalties plus other legal settlements that JP Morgan Chase has paid from 2009-2012.  It is not a pretty picture.

The fact that JP Morgan Chase has had record profits is irrelevant to these critical issues.  Wall Street and its too-big-to-fail banks had record performance in the years leading up to the 2008 financial crisis as well.  Just like the London Whale surprised everyone, when a financial crisis hits, record profits often conceal very costly hidden dangers and incredibly poor management.

The country is still suffering from the last financial collapse caused by Wall Street’s too-big-to-fail banks.  Unemployment remains persistently high and unprecedented actions to revive the economy and limit the ongoing damage done by Wall Street last time continues.  The country simply cannot afford another financial crisis and cannot afford Wall Street’s ongoing war against financial reform intended to protect the American people.  Strong, effective leadership and oversight by Boards of Directors at these banks are critical to help prevent that and avoid more taxpayer funded bailouts in the future.

Now that Mr. Dimon is staying in both the CEO’s office and the Chairman’s position, the Board of Directors must nevertheless act to ensure that there is appropriate oversight of the CEO and the bank itself to prevent more London Whales, that the many ongoing federal investigations are handled appropriately, and that JP Morgan Chase become a leader in implementing financial reform in a way that protects the American people and not just its profits.

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