The smoke has now cleared from Jamie Dimon’s dramatic victory at JPMorgan’s Annual Meeting. It may, however, turn out to be a short-lived victory for the Wall Street icon, as well as for the many imperial CEOs of public companies like him who hold the role of both chief executive officer and also chair of the board. Proposal 6 – a shareholder proposal to split Dimon’s current role of CEO/Chair into separate positions, managed to obtain only 32% of the votes cast by JPMorgan’s shareholders. Dimon’s victory, however, is now the problem of the Securities and Exchange Commission (SEC); for it is the public company watchdog that must now step forward in the wake of this vote and implement the necessary reforms to protect not only shareholders but also the general public.
The reality is that if ever there was an argument to split the role of CEO and Chair, JPMorgan is it. Although it is the nation’s largest bank (and the world’s second largest), with assets of nearly $3 trillion, the true global financial impact of JPMorgan is almost immeasurable. And despite its lofty position among fellow financial institutions, it is not immune from turmoil. After all, this is the bank that continues to endure the fallout from the $6 billion trading loss last year at the hands of the now infamous “London Whale”. It also faces investigations from several regulatory agencies for myriad suspected missteps. Against this backdrop, corporate governance experts such as Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance, are reviewing Proposal 6 and asking: “Why should the person being monitored chair the group monitoring them?”
Truthfully, it is hard to argue with JPMorgan’s shareholders. For, despite all the recent troubles, Dimon has been nothing short of spectacular in his ability to navigate the bank to success. JPMorgan earned $21.3 billion last year, and its stock price has been above the industry average ever since Dimon became chair in 2006.
But maybe the shareholders’ vote on Proposal 6 had less to do with the bank’s success and more to do with the indications from Dimon that he might leave the bank if the shareholder proposal passed. They were simply unwilling to find out if JPMorgan’s recent achievements were more about the institution than Dimon. It is worth pointing out that the bank’s shares rose 2% after the vote.
Therein lies the problem for the SEC: shareholder emotion. The inability of shareholders to remove the prospect for financial gain from decisions which will improve overall corporate governance represents a real threat to the U.S economy. If Proposal 6 had been successful at JPMorgan’s Annual Meeting, it would have sent a powerful message to other major banking institutions. Despite the fact that at the end of 2012, 44% of the Standard & Poor’s 500 had a non-executive chairman, only four of the top 20 largest U.S. banks have split the roles.
There is of course a general fear in the corporate world of the government’s regulatory impact. However, the federal government has a long history of appropriately interjecting itself in matters of corporate governance. And now more than ever it is incumbent upon the SEC to act within their designated role to “protect investors … and maintain efficient markets”. Specifically, the SEC should, at a minimum, consider new rules to address splitting the CEO and Chair positions. It is important to note that Proposal 6 was a non-binding shareholder proposal – meaning that although JPMorgan’s board of directors likely would have acted if shareholders had approved the proposal, it was not required to do so. The SEC needs to require, at least every other year, a binding shareholder vote on the splitting of the CEO/Chair roles for corporations that maintain both titles in one position.
In the wake of the Enron scandal, the federal government ushered in corporate governance reforms through Sarbanes-Oxley which were meant to prevent such an event from ever happening again. Then in 2010, in response to the financial collapse that claimed such Wall Street stalwarts as Lehman Brothers and Merrill Lynch, the government gave us the Dodd-Frank Wall Street Reform and Consumer Protection Act. It is time for the government to stop responding to financial crises and instead take proactive steps to prevent them. Splitting the CEO/Chair positions may appear to be a small step, but its impact on the U.S. economy in general and corporate governance, specifically, could be significant.