Jamie Dimon, the gruff, silver-haired chief executive officer and chairman of JPMorgan Chase, is facing an unlikely challenge.
The big bank has stuck to the practice of having its CEO also serve as chairman of its board of directors—a circumstance in which the guy who runs the company also runs the entity that is responsible for overseeing, hiring, and firing the CEO, and which has become increasingly unpopular at publicly held companies.
With a showdown coming up on May 21, The Wall Street Journal is reporting that some big shareholders are threatening to withhold their votes. Three giant institutions that collectively control about 12 percent of the bank’s shares—BlackRock, Vanguard, and Fidelity—have not yet decided whether they will vote for Dimon to continue in both roles. “Although the vote is nonbinding, directors could face pressure to act if more than half of shareholders want the positions divided,” WSJ reports. Last year, WSJ noted, 40 percent of the bank’s shareholders supported a proposal to split the role.
Dimon shouldn’t worry too much. Sure, the age of the imperial CEO may be coming to an end, in corporate America as a whole and in Wall Street in particular; many CEOs are on short leashes, battling declining tenures and increasingly aggressive boards and outsider shareholders. But Dimon, 57, who has been running JPMorgan Chase since the beginning of 2006, is an exception in many ways.
Duff McDonald’s excellent biography of Dimon was aptly titled Last Man Standing, in part because Dimon was one of the few Wall Street executives to emerge through the 2008 financial crisis with his job, fortune, and reputation intact. JPMorgan Chase, like every other bank, made plenty of poor, ultimately costly decisions in the credit boom years. But under Dimon, the bank made less of them than all of its peers, and it had more capital going into the bust. While the bank availed itself of TARP funds and all sorts of crisis-era programs aimed at helping the banks, Dimon and JPMorgan Chase always claimed that they didn’t really need the help.
That was bollocks, of course. The bank issued tens of billions of dollars in low-cost debt guaranteed by the Federal Deposit Insurance Corporation and benefited mightily from the government’s decision to assume formally the debts of Fannie Mae and Freddie Mac. Absent the extraordinary assistance from the Federal Reserve, the Treasury Department, and the American taxpayer, every bank—including JPMorgan Chase—would have gone bust in late 2008 or early 2009.
Meanwhile, events since the crisis have proven that JPMorgan Chase wasn’t (and isn’t) particularly well managed. As Nina Strochlic documents, the bank has repeatedly been forced to settle consumer lawsuits and regulatory charges and investigations relating to: dealings with mortgage borrowers and mortgage investors; foreclosing on active-duty military personnel; rigging bids in the municipal bond market; financial dealing with countries covered by U.S. sanctions; and overcharging for checking overdrafts. The total tab for the company’s missteps has run in the billions.
JPMorgan Chase has also suffered self-inflicted wounds, including the disastrous $6.2 billion loss tied to the trading activities of the London Whale. That’s real money.
So why does the crown rest securely on Dimon’s head? A few reasons.
First, there’s JPMorgan’s sheer size. If a small bank ran into the kind of problem that JPMorgan Chase had in recent years, it would be relatively easy for a few activist shareholders—a hedge-fund manager, a corporate raider—to amass a substantial position and start making noise on the board. But JPMorgan Chase is a huge company with a market capitalization of about $185 billion. That makes it extremely difficult, if not impossible, for a single player—or even a group—to buy enough shares to start calling the shots. Massive size and diffuse ownership combine to make a great recipe for CEO stability.
Second, there’s JPMorgan’s comparative “success.” If huge companies plunge into crisis and look like they’re about to fail, even the most ossified board of directors might act. But while JPMorgan Chase has had a series of embarrassing fails, the bank has never been in real danger of failing. In general, it has performed better than its peers. Below is a five-year chart of JPMorgan’s stock compared with an index of bank stocks. JPMorgan’s stock is essentially flat over the past 60 months, and has trailed the Standard & Poor’s 500, but it has outperformed other banks’ stocks by a large margin.
At many other companies, the embarrassing string of settlements and the London Whale loss might have been enough to derail the career of a CEO. But the main metric that matters for most CEOs and investors is profits. And when the Federal Reserve is providing free money and you don’t have to pay much interest to depositors, when the economy is growing and everybody is doing a better job keeping up with financial obligations, it’s a pretty good time to be a banker. Despite the billions it has paid out in settlements and the huge losses it suffered on foolish trades, JPMorgan Chase continues to mint money: $6.5 billion in the most recent quarter, and $21.28 billion for all of 2012.
Third, Dimon doesn’t seem to have many internal rivals or a natural successor. He’s managed the classic CEO trick of blaming many of the problems on relatively senior people—Chief Investment Officer Ina Drew and Chief Risk Officer Barry Zubrow took the fall for the London Whale trades, for example.
In recent months, many of Dimon’s senior lieutenants have either left or been hired as top executives elsewhere. Co-chief Operating Officer Frank Bisignano last week left to become the CEO of First Data. Late last year, Charles Scharf, a veteran Dimon lieutenant, became the CEO of Visa. In January, investment banking head James Staley left to join a hedge fund.
The cover of Fortune of September 2, 2008, featured Dimon and a gaggle of JPMorgan Chase bankers as “The Survivors.” As Susanne Craig and Jessica Silver-Greenberg noted in The New York Times, “Today, of the 15 executives featured in the article, only three remain—and one of them has been demoted.”
Regardless of the symbolic shareholder vote later this month, Dimon’s reign at JPMorgan Chase is secure. Wall Street’s last man standing will likely have every opportunity to walk off stage under his own power, and on his own terms.