Last year at this time, rumblings of a “shareholder spring” dominated proxy season. Shareholder resolutions proved important, and shareholder votes forced corporate managements to take notice, even at major companies.
In 2012, Citigroup Inc (NYSE:C) shareholders voted against then-CEO Vikram Pandit’s pay, preceding his eventual resignation in the fall. Former Aviva CEO Andrew Moss wasted no time, resigning immediately when the British company’s shareholders rejected his pay package last year.
This year has been less satisfying and dramatic for shareholder rights advocates. Take just one surprising and deflating development: JPMorgan Chase & Co. (NYSE:JPM) shareholders did not vote to strip Jamie Dimon of his chairman title. Maybe the Dimon faithful can breathe a sigh of relief, but most of those who’d like to see real, constructive change in corporate governance probably aren’t.
The Dimon dilemma
Dimon’s success in keeping the chairman title is puzzling given negative events in the past year. The London Whale debacle resulted in a stunning $6 billion loss, and the incident poked a hole in a previously widely held belief: that Dimon was the best of banker CEOs. Bear in mind that when news of the London Whale scandal first broke last year, Dimon dubbed it a “tempest in a teapot.” Instead, it turned out to be a bona fide tempest, and rebutted the idea that Dimon could do no wrong.
In a logical world, the shareholder proposal should have had a shot — or at least garnered a much larger percentage of the vote, especially since proxy advisory firms Glass Lewis and Institutional Shareholder Services, or ISS, both recommended that shareholders vote for the resolution.
Instead, a mere 32% of JPMorgan Chase & Co. (NYSE:JPM) shareholders voted to split the roles. That’s not even as many as last year, when 40% voted in favor of a similar proposal. Here’s some perspective: As of the beginning of May, the bank faces at least eight investigations by regulators. Were JPMorgan Chase & Co. (NYSE:JPM) shareholders asleep when they voted?
The loyalty that most JPMorgan Chase & Co. (NYSE:JPM) shareholders feel for Dimon is clear; it might even be called hero worship. His reputation may be tarnished in the public eye as well as regulators’, but it appears that the firm’s own shareholders were terrified that Dimon would head out the door if the vote didn’t go his way.
Dimon wasn’t even facing an outright firing; splitting the roles would simply reduce influence and imbalance of power at the top. Still, many shareholders and analysts seemed panicked at the thought that Dimon would resign altogether if he lost the chairman role.
If the majority vote had flipped the other way, wouldn’t it have signaled a serious lack of character if Dimon decided to leave? A good leader can accept criticism and might even show a tad of humility after scandals.
A simple fix for stronger governance
From the corporate governance standpoint, separating the roles is simply common sense. Allowing a corporate leader to preside over the company and the board of directors doesn’t sound like a commonsense path to a robust and independent board.
Slowly but surely, many corporations have been evolving and separating the roles. GMI Ratings’ data shows that 68% of S&P 500 companies had combined CEO and chairman roles in 2005, but that percentage had dropped to 56.4% in 2012. About 21% of companies boasted an independent chairman last year, compared to a minuscule 8.5% in 2005.
Last summer, GMI also crunched its data to reveal that large-cap companies with different individuals holding the titles generated a 28% higher return over a five-year period.