As JPMorgan Chase & Co. (JPM)’s Jamie Dimon prepares for a vote tomorrow on whether he should keep his chairman and chief executive officer titles, he may take comfort knowing most of his biggest shareholders are led by men with the same dual role.
Seven of JPMorgan’s 10 largest owners -- including top five BlackRock Inc. (BLK), Vanguard Group Inc., State Street Corp. (STT), Wellington Management Co. and FMR LLC -- are run by CEOs who are also chairmen. The top 10 hold a combined 29.5 percent of New York-based JPMorgan’s stock, data compiled by Bloomberg show.
“People just like him are going to vote on this,” said Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor. “If you’ve told your own board that the best structure for the sake of the company is to combine the roles, then how do you turn around and say, ‘But that’s not true for JPMorgan?’”
Of JPMorgan’s top 10 shareholders, only Baltimore-based T. Rowe Price, the seventh-biggest with a 2.15 percent stake, has commented publicly on Dimon’s role. Brian Rogers -- T. Rowe Price’s chairman and chief investment officer, and not the CEO - - said in a May 16 statement that “I fully support the combined chairman and CEO role at JPMorgan under the superb leadership of Jamie Dimon.”
Brian Lewbart, a T. Rowe Price spokesman, said there’s no single management formula that’s right for every company.
“Our own corporate structure does inform the voting positions we take, but there are all different types of board leadership structures that work and don’t work,” he said.
Since Dimon took over as CEO at the start of 2006, JPMorgan has climbed 32 percent, the best performance in the KBW Bank Index (BKX) of 24 U.S. lenders. The shares have advanced 8.3 percent since he became chairman at the end of that year, the fourth-best showing in the index. The company’s net income in the seven years ended Dec. 31 totaled $104.8 billion.
JPMorgan is holding its annual meeting tomorrow in Tampa, Florida. The vote on splitting the chairman and CEO roles, proposed this year by a group of retirement plans including the AFSCME Employees pension fund, won about 40 percent approval last year. Investors are set to vote on three other shareholder proposals at the meeting, as well as five from management.
Fidelity Investments, whose parent FMR is led by Chairman and CEO Edward C. Johnson III, has a policy of opposing proposals for a separate chairman, according to its corporate-governance and policy guidelines. Boston-based Fidelity is JPMorgan’s fifth-biggest shareholder, with a 2.44 percent stake as of March 31.
“FMR will consider voting for such proposals in limited cases if, based upon particular facts and circumstances, appointment of a non-executive or independent chairperson appears likely to further the interests of shareholders and to promote effective oversight of management by the board,” according to the guidelines.
Money managers typically cast proxy votes on behalf of most of their clients who actually own the shares. Exchange-traded funds and the vast majority of mutual-fund shares are voted by the manager. Larger institutional clients such as public pension funds are more likely to cast their own votes. Shares held by individuals with brokerage accounts at Fidelity aren’t included in Fidelity’s JPMorgan stake.
A combined chairman and CEO makes more sense at a closely held firm like Fidelity, where the owners have a greater stake in how it’s run, than in a big publicly traded company where shareholders have less power and need an independent advocate, said B. Espen Eckbo, who directs the Lindenauer Center for Corporate Governance at Dartmouth College’s Tuck School of Business.
“The main task of the board is to hire, fire and set CEO compensation,” Eckbo wrote in an e-mailed response to questions. “So, combining the two positions creates an inherent conflict of interest which can and should be avoided.”
BlackRock, the world’s biggest asset manager and JPMorgan’s top shareholder, plans to outsource its decision on the bank’s proxy to London-based Governance for Owners, a person familiar with the matter said on May 9. BlackRock did the same thing last year, which resulted in a vote against separating the roles.
Closely held Vanguard, run by Chairman and CEO F. William McNabb III, said it doesn’t have a firm view on how companies should structure the roles.
“We believe that there should be an element of independent leadership on the board, but that each board should have the latitude to determine what form that independence takes,” according to John Woerth, a spokesman at Valley Forge, Pennsylvania-based Vanguard.
Proxy votes by State Street’s money-management unit, State Street Global Advisors, are independent of the parent company, according to its proxy guidelines. Proposals to split the chairman and CEO are considered on a case-by-case basis.
JPMorgan has said that former Exxon Mobil Corp. Chairman and CEO Lee Raymond’s role as an independent “lead director” negates the need for a separate chairman. Bank of New York Mellon Corp., JPMorgan’s ninth-biggest shareholder, makes a similar case in support of its decision to consolidate the chairman and CEO roles in Gerald Hassell.
“All but one of our directors are independent,” said Ron Gruendl, a spokesman for Bank of New York Mellon. “We also have a strong and independent lead director, which is consistent with a majority of our peer group and serves as an effective counterbalance to factors commonly cited as reasons to separate the chairman and CEO positions.”
Bank of New York Mellon’s governance committee “generally votes against shareholder proposals to separate the chairman and CEO positions if a lead or presiding director with appropriate authority is appointed,” according to the firm’s proxy-voting guidelines.
If having a lead director is about the same as having an independent chairman, then it’s not clear why JPMorgan’s management should resist making the lead director the chairman, said the University of Michigan’s Gordon.
“There’s a difference that’s important to the companies that are doing that and the difference is a strong and independent lead director isn’t as powerful as a chairman,” Gordon said.
The fact that so many large shareholders are themselves run by a unified chairman and CEO shows “why it’s so hard to improve corporate governance,” Gordon said. “The people who have the power to improve corporate governance don’t really want it improved. They like it the way it is.”