How is Jamie Dimon responding to increasing shareholder pressure to divide the CEO and chairman roles at JPMorgan Chase (JPM +3.59%)? With implicit threats that, well, aren't very threatening.
Jamie Dimon has made it clear he's not thrilled with a shareholder proposal calling for the separation of the CEO and chairman roles at JPMorgan. In February, he toldinvestors that he wouldn't have taken his previous job at Bank One if he weren't allowed to serve as both CEO and chairman, saying, "Troubled company, big turnaround, divided board. Not me. Life is too short."
While some have argued that we should heed this threat, I believe it should only strengthen shareholders' resolve to oust Dimon as chairman. And if he resigns from his position as CEO? Well, bonus!
Divided board
It's no surprise that Dimon doesn't want a divided board. Personally, he has every reason to prefer a board filled with directors who are united in support of him despite his serious missteps.
But united boards aren't always good for shareholders.
For example, while Aubrey McClendon certainly appreciated having a board that thought his decision to take out $1.1 billion in loans against his stake in company-owned wells posed no conflicts of interest. Chesapeake (CHK +0.00%) shareholders felt differently, as demonstrated by the declinein its stock price once McClendon's actions were exposed.
Not surprisingly, McClendon experienced "philosophical differences" with the new board after he lost his chairmanship and when four new directors, selected by activist shareholders Carl Icahn and Southeastern Asset Management, replaced four previous board members.
As I argued here and here, Dimon and his board have also given us plenty of reasons to question their judgment and candor. Key problems include:
- The company's decision to deal with risk limit breaches by ignoring them and by altering risk models to obscure risky investments.
- Dimon's dismissal of concerns about the London Whale trades, calling the threat a "tempest in a teapot," despite the fact that he allegedly knew about the size and complexity of the trades and the losses that already incurred because of them.
- Dimon's irresponsible certification of a deeply flawed internal controls process.
- The board's lax oversight of Dimon and the internal-audit and finance functions.
Granted, these problems could be characterized as mistakes rather than the misuse of company resources for personal gain that we saw at Chesapeake. However, whether these missteps resulted from incompetence or an intentional abuse of power, I believe the bottom line is that the behavior of Dimon and his board demonstrate that they are untrustworthy.
In short, I don't think Dimon's "unified" board should inspire much trust among shareholders. In cases like this, I submit that a divided board, in which questionable decisions like these are challenged before scandals arise because of them, is just what the doctor ordered.
