It was a mixed verdict in a closely watched test of corporate governance at U.S. companies. Dimon emerged in a stronger position after the proposal to split his roles won just 32 percent of the shareholder vote, less than the 40 percent a similar proposal got last year.
But the tepid support for the three directors came as a rebuke of the bank following a surprise $6 billion trading loss JPMorgan had suffered last year. Prominent shareholder advisory firms had urged JPMorgan shareholders to withhold their support for those directors, who served on the bank’s risk policy committee at the time of the loss.
JPMorgan was an unusually strong company to be targeted by shareholder activists. It has been turning in record profits and its stock price is at a 12-year high. Dimon has been widely praised for his astute stewardship of the bank through the 2008 financial crisis, though his reputation has been tarnished since the trading loss, which seems to have caught him flat-footed, came to light.
Dimon, speaking after the vote, said the bank was taking the feedback from the bank’s shareholders “very seriously.”
The outcome was a disappointment to the shareholder groups that had lobbied to split the chairman and CEO roles. A “yes” vote would have served as a request to the bank to strip Dimon of his role as chairman of the board and have someone from outside the company do the job. Since corporate CEOs answer to their boards of directors, headed by the chairman, the thinking goes that having the roles split would result in greater accountability for the CEO.
While the chairman-CEO measure didn’t succeed, shareholders expressed their discontent in other ways. Three JPMorgan board members were re-elected by only slim margins: David Cote, chairman and CEO of Honeywell; James Crown, who runs a privately owned investment company; and Ellen Futter, president of the American Museum of Natural History, were re-elected with less than 60 percent approval. The other eight directors, including Dimon, were re-elected with support of more than 90 percent.
It isn’t clear if or how the board will respond to the tepid support shareholders gave to the three directors, but it does put pressure on them to make changes. Lee Raymond, the No. 2 board member behind Dimon and the retired chairman and CEO of Exxon Mobil, said the board “will continue to review” its current makeup.
While Dimon survived the call to split his roles, the shareholder proposals against the bank are another sign that corporate governance activism is gaining traction, said Brad McMillan, chief investment officer at Commonwealth Financial.
“Jamie Dimon is one of the best, if not the best, CEO in the world,” McMillan said. “But, at the same time there have been failures under his management that suggest maybe it does make sense .... to say that we need some independent board supervision.”
Lawrence Hamermesh, director of the Widener Institute of Delaware Corporate Law, said it was unclear if JPMorgan would take action, noting that its strong stock performance would have a “remarkably calming effect” on investors. JPMorgan’s stock is up 21 percent this year and is the highest it’s been in 12 years. On Tuesday it rose another 1.4 percent, or 73 cents, to $53.02.
Glass Lewis and Institutional Shareholder Services, two well-known firms that advise big shareholders on how to vote their shares, had recommended kicking out Cote, Crown and Futter, who were on the board’s risk policy committee during last year’s “London whale” trading loss, nicknamed for the size of the loss and the location of the trader who made out the soured bets.
Bill Patterson, executive director of the CtW Investment Group, which had lobbied both to split the CEO/chairman roles and against Cote, Crown and Futter, said he expected the three directors to step down. He noted the same thing had happened with Hewlett-Packard directors who got similar levels of support at their board meeting.
“A split vote is not a shareholder mandate,” Patterson said. “It’s a vote of no confidence.”
The shareholder meeting, held at company offices on the outskirts of Tampa, Fla., had fewer theatrics than last year’s meeting, which was held just days after the trading loss was disclosed. Last year, two or three dozen protesters showed up. On Tuesday, one woman with a cardboard sign was spotted, but only briefly.
The meeting was held off a highway exit populated mostly by gas stations and the Florida state fairgrounds. One shareholder complained at the meeting that it took two hours to find the venue.
The atmosphere in the meeting, which lasted about an hour and 45 minutes, was largely congenial. A couple of shareholders told Dimon he was doing a great job. But Dimon, Raymond and general counsel Stephen Cutler, who shared the stage at the front of a first-floor meeting room, shut down some questioners and made them adhere to three-minute time limits.
CSLA analyst Mike Mayo asked Raymond if shareholders could be assured that the board was doing its job of policing the CEO. “This is the first time that anybody has said to me that I’m not strong enough,” replied Raymond, who is in his 70s.
JPMorgan Chase & Co. has been turning in record earnings. But it’s also facing regulatory investigations and lawsuits, not only over the trading loss but also other practices including how it handles foreclosures.
Father Seamus Finn, from the Interfaith Center on Corporate Responsibility, said Dimon had brushed over questions on crucial issues like allegations about manipulating a key interest rate known as Libor, and other allegations.
“We didn’t get answers to any questions,” Finn said afterward. “He always says, ‘We have the deepest capital markets in the world.’ I don’t disagree with him. But Libor and the London whale happened with the deepest capital markets in the world.”
Several shareholders also asked why the shareholder groups that backed splitting the chairman and CEO roles stopped getting access to the vote counts as they came in, even though JPMorgan did have access. The New York Times reported that the change followed a request from SIFMA, which is Wall Street’s main lobbying group.
“All of a sudden we were shut down,” said Michael Garland, from the New York City Comptroller’s Office, which had supported splitting the roles.
Cutler declined to comment about access to the vote count. Dimon declined to comment about how much the bank contributes to SIFMA.
Dimon called the London whale loss “extremely embarrassing.” He promised that the bank was overhauling priorities and fixing practices that regulators were concerned about.
“I can’t tell you we don’t make mistakes, I can’t tell you there’s not a bad apple among them,” he said. “But we try to fix our problems and move on.”
In the previous six annual meetings where Dimon has been both chairman and CEO, shareholders have been asked about separating the roles four times. Last year marked the highest level of votes in favor of the idea. In 2007 and 2008, only about 15 percent of shareholders voted for similar measures.