According to preliminary tallies, Jamie Dimon will remain both CEO and chairman of JPMorgan Chase after shareholders defeated a proposal to remove Dimon from the chairmanship. The proposal put forth was meant to create a more independent board to oversee Dimon. Despite Dimon’s success as chairman and CEO, this vote reinforces the dangerous system of concentrated power in major American corporations.
Investor groups and corporate-governance advocates have long argued that separating the roles of board chairman and CEO creates stronger, more independent boards that can properly monitor management. Across corporate America this idea has grown in popularity. By the end of 2012, 44% of the Standard & Poor's 500 had a non-executive chairman. Even last year at JPMorgan Chase a similar proposal to strip Dimon of his chairmanship had support from 40% of shareholders.
That the biggest bank in the country is sometimes called "The House of Dimon" should be warning enough that Dimon has centralized control over a company that is too big for any one person to manage. Under his tenure as chairman and CEO JPMorgan has faced sanctions for withholding information concerning the Madoff Ponzi scheme, and last year lost more than $6 billion on poorly managed bets as part of the “London Whale” trading scandal. Further, the bank is currently being investigated simultaneously by eight government agencies for activities including the bank’s trading in the California and Michigan electricity markets.
That being said, Dimon has had many successes as well. The bank earned a strong $21.3 billion last year, and the bank’s stock price has done better than the industry average since Dimon became chairman in 2006. During the financial crisis, JP Morgan never needed a bailout and in fact bought Bear Stern and Washington Mutual to become the country’s biggest bank.
With these mixed results, one huge factor tipping the scale in Dimon’s favor was him saying he would leave the bank entirely if removed from the chairmanship, even though the vote is only advisory. The disruption in management and harm this could have done to share prices was a central factor in some shareholders’ decision.
Although history suggests that separating the two roles may hurt profitability, corporate governance should not be undervalued. A Texas Christian University and Indiana University study found that separating the two roles will hurt a company performing well, but can help a company performing poorly, as measured by total shareholder returns and stock analysts' recommendations.
A second study by GMI ratings, a corporate-governance rating firm, found that shareholders in companies where the two positions were combined did better in the neat term but five-year results favored the companies with split management.
Dimon’s strong political play and above-average performance has kept him the strongest banker on Wall Street, but shareholders should be cautious. After all, the chairman of the board is supposed to ensure that the CEO is working in the best interest of shareholders, and where the two very different roles are combined, oversight is often lacking.