The man who controls the largest bank in the U.S. just got more powerful. Jamie Dimon defeated a proposal today that would have barred him from serving as both chairman and chief executive officer of JPMorgan Chase, after a year that saw record profits—and the most reckless trading loss in the bank’s history.
Only one in three shareholders voted to split Dimon’s jobs. That’s less support than the same proposal drew last year, before the full extent of JPMorgan’s “London Whale” losses, and the management failures that precipitated them, became known. Shareholders voted to keep every member of the bank’s board, including the committee that blew its job of keeping tabs on risk, and Dimon himself won reelection with an overwhelming 98 percent of ballots.
Dimon’s victory represents a decisive setback for the argument that the $2.4 trillion bank needs better oversight, one that pension funds and good-governance groups seemed to have a good shot of winning in the days leading up to the vote. The California Public Employees’ Retirement System (CalPERS), Glass Lewis, and Institutional Shareholders Services, among others, recommended that Dimon should not be allowed to keep his chairmanship—a chorus that helped turn a fairly common shareholder issue into a referendum on the most visible champion of the banking industry.
On top of ongoing London Whale scrutiny, Dimon’s bank faces a barrage of federal investigations into its operations, from mortgage abuses to energy market manipulation. At the same time, it has never earned more money, making $21.3 billion in 2012 and then record profits in the first quarter of 2013. As Bloomberg’s Max Abelson and I wrote in this week’s Businessweek cover story, Dimon’s defenders have used the latter to excuse or deflect attention from the former. An implied threat hung over the debate: If shareholders vote against Dimon after the year he’s had, he just might quit. Who would run the financial megalith then? And what would happen to its share price?
“The mood seems to have changed a lot over the last two weeks,” said Bill Daley this morning, as early word of the vote trickled in. Daley is a former JPMorgan executive and ex-chief of staff to President Barack Obama. “The proponents kind of snuck up on everybody, and then the drumbeat began, and … there seemed to be a sense it was gonna happen.” Then, he said, shareholders began to think about the upshot. “The consequences of this vote could be that Jamie leaves or hastens his departure. As a shareholder, you gotta say, ‘Holy moly, this isn’t a game. There are results to this thing.’”
In the runup to the vote, Daley reached out to one of the proposal’s biggest backers, the 1.5 million-member American Federation of State, County and Municipal Employees, about the possibility of making some kind of deal. Lloyd Blankfein, the Goldman Sachs chairman and CEO who faced a similar vote this year, cut an agreement in April with an investment advisory group that let him keep both titles but elevated the role of his board’s lead director. Dimon didn’t do that and won anyway, with implications for other CEO-chairmen targeted by shareholder democracy groups.
“Now that they’ve picked the fight with the biggest kid on the block—i.e., JPMorgan and Jamie—and lost it, other people are going to say, ‘How powerful are you guys? You couldn’t knock off a guy who was on his heel, by virtue of the London whale?’” Daley said. “Next year, how will they go after Goldman?”
In addition to running JPMorgan, Dimon has played a public role as the most outspoken champion of banking in the years after the financial crisis. The industry faces a serious challenge as Congress considers “Too Big to Fail” legislation sponsored by Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.), which Dimon would have been less able to shape had he been stripped of his chairmanship.
Anat Admati, a Stanford professor and author of a new book that has strongly influenced the TBTF debate, was initially unruffled about the results of the JPMorgan vote. “You’re not going to get me foaming at the mouth on this issue,” Admati said. She said the focus on the bank’s leadership was secondary to the larger issue of the complexity of big banks and the danger they pose to the public if they fail. “The important thing is: Is JPMorgan too dangerous, too bloated, too subsidized, and too complex for the rest of us?”
Later, having thought some more about Dimon’s win, Admati called me back. “I think I might get more upset as the day goes on,” she said.