JPMorgan Chase is working behind-the-scenes to avert a major potential embarrassment.
In anticipation of a crucial vote at next month’s annual meeting, board members are planning to sit down with some of the bank’s biggest shareholders to make their case that JPMorgan’s influential chief executive, Jamie Dimon, should keep his chairman title, according to several people briefed on the plans who were not authorized to speak on the record.
The campaigning, which shareholders indicated is unusually proactive this year, reflects the growing worries within JPMorgan that investors may be dissatisfied with management over the continuing fallout from a multibillion-dollar trading debacle.
In the past, such investors say they usually received only a phone call from executives in the investor relations department or met with them in person. Along with director meetings, the company this year is also contacting smaller shareholders who previously might not have heard from the big bank at all.
Voting to split the roles would send a powerful message. Few big banks have separated the chairman and chief executives positions. And when they do, it generally occurs during a broader management shake-up, as in the case of Bank of America and Citigroup.
“As we approach our annual meeting, we are conducting our normal shareholder outreach program, which offers an opportunity to review company matters with investors and which sometimes includes conversations with directors,†said a JPMorgan spokesman, Joe Evangelisti. “As we mentioned in our proxy filed last week, a director can be available for discussions with major shareholders.â€
A few big shareholders can make a difference â€" in either direction. Last year, roughly 40 percent of the JPMorgan investors supported a proposal to split the roles.
Firms that advise some of the nation’s largest shareholders are expected to recommend again that JPMorgan separate the posts of chief executives. Other big investors, including some that voted to keep the roles together last year, remain undecided, according to a number of shareholders who spoke on the condition of anonymity because of policies against talking to the media.
“If you separate the roles there is another set of eyes and ears,†said Michael S. Levine, a portfolio manager at OppenheimerFunds. “That is not a bad thing, because there is more accountability. But in comparison to their peers JPMorgan have done arguably the best job.†Oppenheimer, which owns 20 million JPMorgan shares, typically votes in line with the advisory firm, Institutional Shareholder Services, on proxy matters.
JPMorgan’s Trading Loss
While a shareholder vote in favor of splitting the positions would not be binding, it would put pressure on the board to split the roles. The outcome would also indicate that many shareholders have lost faith in Mr. Dimon, 57, a precipitous fall for an executive who successfully steered the bank through the turmoil of the 2008 financial crisis.
If the vote goes against the company and the board decides to split the role, some board members and shareholders are concerned that Mr. Dimon might resign altogether rather than face the affront to his power. Several shareholders have said privately that succession is a major factor in their decision-making process. In meetings with directors, the shareholders said they plan to ask about succession planning, and the board’s ability to exert influence on bank management.
Over the years, companies have been moving to split the role of chairman and chief executive, either proactively or at the urging of shareholders. The move is designed to create stronger, independent board, as a way to keep management in check. Last year, Citigroup’s board, let by a strong-willed chairman, Michael E. O’Neill, voted to oust its chief executive, Vikram Pandit.
In February, a group of JPMorgan shareholders filed a resolution to divide the chairman and chief executive posts. Since then, those investors have been working to gather support for the proposal.
“We don’t believe the person responsible for these costly mistakes should be overseeing reforms,†said Denise L. Nappier, the Connecticut state treasurer and a supporter of the proposal.
The board voiced its support for Mr. Dimon in March, saying that he should keep the chairman and C.E.O. titles. “The board has determined that the most effective leadership model for the firm currently is that Mr. Dimon serves as both,†the 11-member board wrote in the proxy filing.
The board, including the lead independent director, Lee R. Raymond, the former chief executive of Exxon Mobil, has been trying to flex its muscle in recent months. In January, directors voted to slash Mr. Dimon’s pay by more than 50 percent to $11.5 million, in response to the trading loss.
Now, the board is dispatching directors to meet with shareholders, according to people briefed on the board’s plans. While these meetings have yet to take place, shareholders say the board is likely to stress that they understand the investors’ concerns â€" and that the board is on top of the company’s problems. As well, JPMorgan are likely to emphasis firm’s strong profitability in recent years, despite its recent missteps.
It is hard to predict the outcome of the vote.
JPMorgan is owned by a wide variety of shareholders. Institutions like well-known mutual funds like Fidelity Investments and Vanguard Group are among the biggest holders, which collectively own more than six percent of the company. Both firms have a history of following the board’s voting recommendations at JPMorgan, according to data compiled for The New York Times by the research firms Fund Votes and Disclosure Matters LLC.
Still, other shareholders have switched their position, according to the data providers. Last year, American Funds voted to split the roles at JPMorgan, after having opposed it in previous years. Funds managed by Franklin Templeton voted against a split in 2007, but they have favored in subsequent years.
“The top shareholders, BlackRock and Vanguard, decide the outcome 82.2 percent of the time, and both of them have previously sided with management on this vote,†said Travis Dirks, the head of Rotary Gallop, a firm that is often hired to predict the outcome of proxy fights. “That is hard to defeat,†adding that it would take hundreds of smaller shareholders to tip the scales.
Last year, JPMorgan held its annual meeting in May, just weeks after it disclosed the trading loss to investors. One shareholder, who asked not to be named because of a firm policy against speaking to the media, said last year the loss was fresh and it wasn’t a big factor in how his firm voted.
This year, he said the decision isn’t as clear. The ongoing fallout from the trading loss, including the bank’s frayed relationship with regulators and concerns about its risk controls, will weigh on his vote. But he added that splitting the role could create more problems than it solves, creating more management upheaval.
Several shareholders say the lack of a clear succession plan is similarly weighing on their decision.
During the past two years, Mr. Dimon has dramatically remade the upper echelons of the bank’s management. More than half of Mr. Dimon’s management team who helped steer that bank through the financial crisis have left, including James E. Staley, the former head of the investment, and Barry Zubrow, the bank’s top regulatory officer. Those who remain at the bank are mostly younger executives, many of whom are in their 40s and not necessarily ready to take the reins.
“It’s tricky,†said the shareholder. “The reward for a lack of succession planning isn’t to leave Mr. Dimon with both titles. Yet we are worried about what he happens if he leaves because of a vote to split the top roles.â€
