The Battle Jamie Dimon Shouldn't be Fighting
Jamie Dimon, the perpetually embattled chairman and chief executive of JPMorgan Chase, likes to say, "Do the right thing." This time, Dimon is doing the wrong thing.
Dimon's latest battle is with his own shareholders. Investors in the bank have proposed splitting Dimon's job and naming someone else chairman. Although the vote wouldn't be binding, it would be difficult, to say the least, for Dimon to remain as chairman were his own investors to vote against him.
The bank's management has been lobbying big shareholders to vote against the proposal (the vote will be tallied at the company's annual meeting, May 21). There has even been talk that, were Dimon to lose, he would pack his ball and glove and retire. That would be too bad, for Dimon and for JPMorgan.
Here's the thing. This is one battle Dimon shouldn't be fighting. He should resign as chairman — before the vote.
Some of the institutions angling for a separate chairman say Dimon has made too many mistakes to hold both jobs. As he is the first to admit, Dimon has made mistakes. In particular, he failed to detect, or to prevent, the risks incurred by a rogue trader, the infamous "London Whale," who cost the company $6 billion.
Nonetheless, JPMorgan has been racking up record earnings, and Dimon is still a top CEO. Splitting off the chairman's job should not be seen as sending Dimon to the woodshed; it should be best practice — for every public company.
Understand that "chairman" and "chief executive are not just different titles — they carry very different responsibilities. The chief executive, of course, is the head of management. He decides who to hire and fire, what businesses the company should be involved in, how much risk to take — all of that.
The board chairman is about watching the watchers. If Dimon's bank were owned by a single family, supervision would no problem. But in a public company ownership is spread among millions of disparate shareholders. Day-in, day-out, the senior managers have far more power than the people they work for. The dilemma has been recognized since Berle and Means's 1932 classic, The Modern Corporation and Private Property. The best solution is a vigorous and independent board, whose job is to represent the public owners. And when Dimon reports to that board, his role should be similar to that of a diligent store manager, or of any hired hand, reporting to his owner on how the business has been going.
Dimon shouldn't run the board, because the board is the agent for Dimon's boss, and its first responsibility is to monitor Dimon. Perhaps it would be different for a company founder who still owns the majority of the stock. But the vast majority of CEOs, Dimon included, have very small percentage investments. Their dual roles are not only inappropriate, they are vestigial hallmarks of the imperial CEO.
Since the corporate abuses of the early 2000s, the stock exchange and Nasdaq have required listed companies to appoint a "lead director" to make sure the board keeps a lookout. That's a half-step. JPMorgan has an energetic lead director. However, the chairman has authority — why else would Dimon fight to hang on? (If it's only about image, the imagery is wrong. Dimon should enter the boardroom as an employee, not as even a ceremonial head). If the exchanges or the Securities and Exchange Commission had any guts, they would simply require that the chairperson be independent.
Dimon is a perfect example of why. With his well-advertised aversion to risk, he steered JPMorgan around the worst of the mortgage debacle. His bank did not need a bailout (it took TARP money on orders from the Treasury). Nonetheless, JPMorgan suffered more write-offs than Dimon predicted. It stumbled again during the robo-signing debacle. The point is, even good CEOs make mistakes and all of them need watching. Dimon's mercurial temperament — charming one moment, steaming the next — is another reason he shouldn't be supervising himself.
The bank's directors have hardly been pushovers — last year, they cut Dimon's pay in half, to $11.5 million. But the directors face some distinct challenges. With Dimon 57, it is high time to be thinking about succession, especially since the bank has suffered a string of executive departures. They also must monitor the London Whale clean-up (it reportedly involves eight different investigations). Finally, there is the ongoing task of evaluating Dimon's performance. On each of these, the bank's shareholders will be served best if management submits its advice to a board led by an outsider.
Apple signaled that the days of the imperial CEO were over when it named Tim Cook to succeed Steve Jobs as CEO but not the chairman. With Apple struggling, that has proved fortunate. Now, Dimon, who takes corporate governance more seriously than most, has a chance to redefine best practice for Wall Street — Lloyd Blankfein at Goldman Sachs take note — and for corporate America. He shouldn't wait for the shareholders. Jamie, do the right thing.