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JPMorgan’s board needs a dose of “trust, but verify.” In a filing on Friday, the bank’s directors reiterated their support for keeping Jamie Dimon as both chairman and chief executive officer. Some faith in his leadership is warranted. After all, JPMorgan performed well last year, with a better return on equity than most rivals despite a $6-billion (U.S.) trading hit. But that sorry risk-management episode shows exactly why a separate chairman’s oversight would be valuable.
The bank’s own report into last year’s London Whale fiasco detailed many of the shortcomings that allowed losses to become large enough to dent the firm’s earnings and reputation, including poor controls, conflicting mandates, primitive technology and insufficient supervision.
The U.S. Senate’s report earlier this month lambasted the firm for misleading the Office of the Comptroller of the Currency (OCC), ignoring breaches of its risk limits and playing down losing trades until the red ink became too plentiful to ignore.
While other executives may have been directly responsible, the debacle shows that Mr. Dimon had a blind spot when it came to the chief investment officer. He left loyal lieutenant Ina Drew – who reported to him – in charge of the unit for seven years despite shuffling the leadership elsewhere. And he didn’t ensure its risk-management practices matched up to those in, say, JPMorgan’s investment bank.
That said, Mr. Dimon’s reaction was exemplary once it was clear the bank was about to lose a bundle. He became a mea culpa expert and shook up both management and processes, though the OCC insisted on some changes. And directors cut Mr. Dimon’s 2012 pay in half from the year before.
Even so, it should not count as a mark against a CEO if a second pair of eyes, in the form of a separate chairman, would help minimize the chances of another costly mistake.
At last year’s annual meeting, 40 per cent of investors supported splitting the two roles. At this year’s gathering, on May 21, shareholders will vote on a proposal from owners including the New York and Connecticut pension funds that even makes the requirement for an independent chairman a prospective one, so Mr. Dimon’s dual role wouldn’t necessarily be under immediate threat. The board thinks independent oversight is already strong. Shareholders may think differently.
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