You might think that the chairman and CEO of a major bank that had just pleaded guilty to a federal felony charge and has paid out more than $20 billion in legal settlements in recent years would show a little humility.
But then you wouldn’t be reckoning with Jamie Dimon, the head of JPMorgan Chase. At an investment conference in New York this week, Dimon lashed out at institutional investors who voted against his pay package and his dual role as the firm’s chairman and chief executive, and otherwise rejected management’s wishes on shareholder resolutions at the annual meeting May 19.
Dimon reserved special contempt for investors who followed the recommendations of two leading advisory services for institutions, Glass Lewis & Co. and Institutional Shareholder Services, or ISS. Both had advised clients to approve a shareholder proposal to separate the chairman and CEO jobs at JPMorgan. ISS also called for a vote against a $7.4-million bonus Dimon received for 2014, calling it unjustified.
“God knows how any of you can place your vote based on ISS or Glass Lewis,” Dimon said petulantly at a conference sponsored by Sanford C. Bernstein & Co., as the crowd tittered nervously. (The audio can be found here.) "If you do that, you are just irresponsible, I’m sorry. And you’re probably not a very good investor either.... I know some of you do it because you’re lazy.”
What may have irked Dimon the most is that the results of the shareholder voting reflected comparative disaffection with JPMorgan’s performance--though not enough for any of the shareholder proposals to win. Some 38.2% of shares were voted against the pay package for Dimon and other top executives, an outcome accurately described by the Financial Times as “a sizeable revolt from major institutional investors.”
About 43.8% voted in favor of disclosing when JPMorgan clawed back pay from senior executives, which can happen when activities that formed the basis of a performance bonus turn bad. The proposal was filed by several New York State public pension funds and the United Auto Workers. And nearly 36% voted to split the chairman and CEO jobs after Dimon retires.
Glass Lewis officials defended their recommendations after the votes. Separating the chairman and CEO jobs is necessary to eradicate a conflict of interest in the corporate suite, Glass Lewis Vice President David Eaton said on CNBC. “The chairman runs the board, the board provides oversight of the executive team,” he said. “When the CEO is the chairman, that oversight and responsibility becomes blurred. There’s a clear conflict of interest there.” He called it a “governance risk” that should cause concerns for institutional investors.
Dimon’s outburst underscores how unabashed the banking industry remains despite the role of its imprudent behavior in crashing the world economy in 2008. It also demonstrates the utter fecklessness of government prosecution when it’s directed at institutions rather than executives.
After the May 20 announcement of its felony guilty plea, JPMorgan characterized it as applying to “a single antitrust violation” and blamed it on the actions of “a single trader (who has been dismissed).”
The Department of Justice depicted it differently: Morgan and the other banks were pleading guilty to “conspiring to manipulate the price of U.S. dollars and euros” on international exchanges, according to the agency’s release. The banks’ actions were “long-running and egregious,” caused “pervasive harm,” and undermined “the integrity and the competitiveness of foreign currency exchange markets which account for hundreds of billions of dollars worth of transactions every day.”
JPMorgan agreed to pay a penalty of $550 million--another addition to a bill for alleged wrongdoing by the bank that exceeds $20 billion over the last few years. By failing to name names, the Justice Department merely allowed JPMorgan to continue pretending that its plea resulted from an isolated incident rather than a pervasive culture of rule-breaking and a lack of serious management oversight.
Efforts by the shareholder advisory firms and activist institutional investors, including the California Public Employees’ Retirement System (CalPERS), to hold executives and directors accountable have been largely unavailing. After JPMorgan’s disclosure of a $6.2-billion trading loss in 2013--the celebrated “London whale” fiasco--Glass Lewis called for six directors, including three with risk-management responsibilities, to be replaced. Four are still on the board.