Finance

Stephen Gandel is a Bloomberg Gadfly columnist covering equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.

JPMorgan Chase & Co.'s board now has a clear plan for what to do in a nuclear war. Fraud, which happens far too often on Wall Street, not so much.

JPMorgan on Thursday afternoon approved a series of tweaks to its bylaws. Included in the changes is a new section on how the board will function if a nuclear war, or some other catastrophe occurs, such as a chemical or biological attack or a natural disaster. Any board member can call a meeting, and anyone who shows up immediately is considered a quorum. No need to wait to find out if Jamie Dimon, JPMorgan's chairman, or Lee Raymond, its lead independent director, have already been vaporized. And any means of communication is acceptable, including presumably floating bottles between their well-prepared private island nuclear bunkers.

Billion Here, Billion There
JPMorgan Chase paid multibillion-dollar legal settlements in 2012 and 2013
Source: Bloomberg

JPMorgan's bylaws, though, even after this week's changes, remain silent about how board members should act, or more important, be punished if JPMorgan or its executives are found to have committed fraud. That's odd. JPMorgan's board has had to deal with instances of fraud, and large legal settlements, far more often than nuclear disasters.

Bank Penalties
Global lenders have paid $321 billion in penalties since the financial crisis
Source: BCG

Most notably, the company's board guidelines are silent on what should happen to directors if the company is found to have breached its duty to shareholders or customers because of widespread abusive behavior or, say, an egregious breach of its computer systems. Earlier this week, Warren Buffett, speaking out about Wells Fargo & Co. and its fake-account scandal, said companies should adopt policies to claw back as much as five years of pay from board members when wide-scale fraud is found to have taken place. This would presumably include multibillion-dollar settlements like the ones JPMorgan reached in the wake of the financial crisis in 2012 and again in 2013.

JPMorgan does have, at least on paper, a relatively rigorous clawback policy for its top executives and employees. But, like many other companies, that clawback policy doesn't extend to its board. What's more, it's not triggered all that often. There were no clawbacks after the bank paid fines for selling faulty mortgages, or facilitating Bernie Madoff or manipulating electricity markets. The bank did claw back pay of traders in the wake of the London Whale trading loss, but that was an instance in which JPMorgan lost money, not its customers, so you can understand why the bank would be particularly peeved. Last year, JPMorgan's shareholders, in the bank's annual proxy, proposed an amendment to the bank's clawback policy to include a provision requiring executives to surrender pay when the bank has to shell out large fines. The board recommended shareholders vote against that one.

No Claws
A 2015 study found that, absent a restatement of past financial results, most corporate executives were not subject to clawback provisions
Source: Frederic W. Cook & Co.

Also missing is protocol for what to do when fraud takes place. In the wake of the London Whale trading loss, JPMorgan was criticized for appointing an employee, who reported directly to CEO Dimon, to lead its review of the matter rather than hiring a law firm or independent outsider. Based on JPMorgan's revised guidelines, the company is free to conduct nonindependent reviews in the future as well.

To be sure, few companies have instituted similar rules for their boards. But in the wake of the Equifax hacking debacle, and in the week in which lawmakers conducted hearings on both the Equifax and Wells Fargo scandals, now would have been an excellent time for JPMorgan to take the lead in an effort to stamp out future fraud and corporate misconduct and state clearly that executives and officers up to the highest levels are accountable for the company's misdeeds.

Instead, JPMorgan now has a plan to deal with nuclear and natural disasters. For those of the human kind, however, the board has decided to continue to wing it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Stephen Gandel in New York at sgandel2@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net