Jamie Dimon, chairman and chief executive of JPMorgan Chase, took an unusual step to fight off investors seeking more oversight of his activities - he hinted he might quit.
And it worked. At the bank’s annual meeting, JPMorgan shareholders voted down a proposal to strip Dimon of his chairmanship, giving the measure even less support than last year.
Investors showed some unhappiness with the bank’s management by only barely re-electing three directors who oversaw a massive trading loss last year. But on the whole, the day was seen as a victory for management, which successfully navigated JPMorgan through the financial crisis, but has suffered some high-profile problems recently.
“People were worried Dimon was going to walk,” said Leon Kamhi, executive director of Hermes Equity Ownership Services, one of the sponsors of the shareholder proposal to split the roles.
Robert McCormick, chief policy officer for proxy adviser Glass Lewis & Co, added: “It’s rare that companies play that card.”
Glass Lewis and Institutional Shareholder Services, the two biggest firms that advise investors on how to vote in proxies, both recommended that shareholders vote in favour of taking the chairman title away from Dimon.
The results highlight how difficult it can be for investors to fight management in proxy votes. Some shareholders thought they had a good chance of winning on the question of Dimon’s chairmanship after the bank suffered US$6.2 billion (HK$48.1 billion) in losses last year from bad credit bets known as the “London whale” trades.
But JPMorgan fought hard. The bank’s directors spoke to about a dozen major investors during their campaign. The shareholder proposal was non-binding - the board only had to consider it not enact it - but losing would have been a black eye for Dimon.
The message from the board, investors said, was that Dimon might leave if he were not chairman and that JPMorgan generated record profits last year, despite losing US$6.2 billion from “London whale” trades.
The bank reached out to critics as part of its campaign as well. The American Federation of State, County and Municipal Employees, one of the investors that sponsored the proposal, said lead director Lee Raymond and director William Weldon sat down with it in early May. Board members had not previously met with AFSCME.
“The company pulled out all the stops,” said Lisa Lindsley, director of capital strategies for AFSCME.
An investor holding several million JPMorgan shares who declined to be named said the bank also reached out to portfolio managers with warnings.
The investor said the bank “made sure investors were reminded of all the upside and all the potential downside” that could follow the vote.
The battle at times turned bitter, as when shareholders found themselves cut off from information about how the vote was progressing in the days before the election. The New York Attorney General ended up pressing JPMorgan to give investors the ballot counts and shareholders are likely to continue to push for change.
Ultimately the battle’s high profile worked in Dimon’s favour. At one large JPMorgan shareholder, an executive who spoke on condition of anonymity said it switched sides this year and voted against the measure to split the dual roles after supporting a similar measure last year when there was less attention.
This year, the executive said: “The issue became a referendum on Jamie Dimon and, in our view, JPMorgan shareholders are best served by having Jamie Dimon run that company.”
The executive added that “it would have been a disaster for the company” if Dimon left because the vote had not gone his way.
JPMorgan won the vote on Tuesday by a greater margin than last year, when shareholders put up a similar proposal. About 68 per cent of investors voted to keep Dimon as chairman and chief executive, compared with about 60 per cent last year. However, three JPMorgan directors who served on the board’s risk committee during the London whale imbroglio last year were re-elected by an unusually slim majority.
Raymond, a former ExxonMobil Corp chief executive, told shareholders before the tally was announced that the London Whale episode was not a reason to split the chief executive and chairman roles.
“Just the opposite,” he said during a question-and-answer session at the meeting. “We don’t think this is time for disruption.”
Raymond, viewed as a counterweight to Dimon on the board, said changes were afoot for the board’s risk committee, but he did not elabourate.
Dimon smiled as he left the meeting in Tampa and the bank’s shares rose 1.4 per cent to close at US$53.02.
Some investors wondered if the publicity around the vote resulted in fewer investors listening to ISS and Glass Lewis, and more doing their own homework.
“I’m guessing that because it was more visible this year than last year, the investment committees of stockholders were probably more thoughtful about it,” Jordan Posner, managing director of Matrix Asset Advisors, a New York money manager with about 619,000 JPMorgan shares. Posner said his firm voted against the split proposal.
Among big-bank chief executives, Dimon ranks first for stock returns, and for delivering a strong balance sheet with no quarterly losses at a time when other global banks were reeling. But some investors feared the bank’s trading losses last year and tussles with regulators signaled Dimon could use more oversight.
In the run-up to the vote, Glass Lewis and Institutional Shareholder Services issued reports critical of the board, particularly the members of the risk committee, whose experience they found wanting.
At the time of the London Whale losses, the committee was made up of James Crown, president of a large family investment company; David Cote, the chief executive of Honeywell International; and Ellen Futter, who heads the American Museum of Natural History in New York. All three remain on the panel, augmented by a new fourth member.
Futter, who won only a 53.1 per cent approval from shareholders, did not attend the meeting. The Wall Street Journal reported earlier on Tuesday that Futter would likely resign from the board if she won only a slim majority of the votes.
“That’s a huge repudiation of them as directors,” Glass Lewis’s McCormick said. “That’s a strong signal that shareholders are unhappy.”
Crown received 57.4 per cent approval, preliminarily, and Cote received 59.3 per cent. Apart from the three singled out by ISS and Glass Lewis, directors received at least 90 per cent approval votes.
Anne Simpson, director for corporate governance at the California Public Employees’ Retirement System, which owns JPMorgan shares, said the vote had set a “high watermark.”
“The goal here is to get the board strengthened, stiffen its backbone and to get people with the experience that is needed to oversee Mr Dimon,” Simpson said.