That challenge came into sharp focus last week as the only star US CEO who does not work in Silicon Valley or wear a hoodie got caught out by the yawning gap between his rhetoric and his bank's performance.
In the kerfluffle over the lost $3 billion fluttering in the whipping winds of that gap, another development appears to have escaped much of the business world's attention: 40% of the aforesaid bank's shareholders voted to split the chairman and CEO role. In Europe, that would hardly cause a raised eyebrow. In the US, that number is unprecedented. It is akin to Tea Partiers joining Occupy Wall Street.
At the other end of the country, a much touted - dare we say overhyped? - IPO whose publicity focused heavily on the sartorial and managerial choices of its 20-something CEO, also disappointed.
The two events may signal that the era of expectations is over and the period for performance has arrived. Personalities are fun, but with much of the world mired in the lingering aftermath of a never-ending financial crisis, tolerance for rhetoric divorced from results is lessening notably. We doubt the upshot will be revolution; too many influentials have too great a stake in the current system. But as the rest of the world has learned from these leaders, profits come before people. JL
John Gapper comments in the Financial Times:
US shareholders have long tolerated a degree of dominance on the part of chief executives that would be untenable in London and elsewhere. They can be both chairman and chief executive, and ensure themselves control through dual voting structures. Caveat emptor, says the corporate emperor.
There are signs of change:
40 per cent of JPMorgan Chase investors voted this week to have an independent chairman. But this move towards shareholder democracy – like the “shareholder spring” in London – has been outweighed by the rush of Silicon Valley initial public offerings in which the company founders have arranged to retain absolute control.
This February, as JPMorgan Chase financial traders in London were building a credit derivatives position that would soon cost the bank $2bn, Jamie Dimon was otherwise occupied. He was on a 550-mile bus ride through Florida.
Mr Dimon took a week-long tour of Chase branches in the Sunshine state, relying on other executives to warn him of problems in his far-flung empire – a bank with assets of $2.3tn and 240,000 employees in 60 countries. Two months later, he snappily dismissed the controversy over the trade as a “complete tempest in a teapot”.
The latter was a mistake that exposed a big flaw in JPMorgan’s financial and managerial controls, as he has admitted. More than that, however, it undermines the myth of Mr Dimon himself – the charismatic chief executive and master of detail inside the bank who could be trusted to get things right.
His humiliation comes as an even more forceful chairman and chief executive – Mark Zuckerberg of Facebook – takes his company public. As hard as it is for JPMorgan shareholders to change Mr Dimon’s mind – its annual general meeting passed by quietly on Tuesday – they stand no chance at Facebook since Mr Zuckerberg controls most of the voting stock.
The JPMorgan fiasco illustrates the danger in this. One lapse does not make Mr Dimon a poor chief executive – although we have yet to discover exactly what happened – but he has been behaving imperiously. Upset by new financial regulations, he berated regulators and barked at central bankers.
“Given a choice between a very good CEO and a ‘star’ CEO, the former is preferable to the latter. Very good CEOs tend to get the job done reliably, without undue fanfare . . . Star CEOs, by contrast, may conflate the institution’s success with their personal goals . . . may start to believe their own press.”
That warning came not from a shareholder activist but from the Group of Thirty, a group of bank executives and central bankers in a report on the governance of financial institutions. Its report, published a day before Mr Dimon’s “teapot” remark, also noted the “compelling logic” of splitting the chairman and chief executive.
Mr Dimon is Wall Street’s last star CEO. With Lloyd Blankfein of Goldman Sachs on the defensive and Dick Fuld of Lehman Brothers departed, the “too big to fail” banks are being managed by low-key, more emollient, leaders such as Vikram Pandit of Citigroup and Brian Moynihan of Bank of America. In both of these cases, the board is headed by a non-executive chairmen.
JPMorgan remains Jamie’s show. Until now, that has produced good results for shareholders and senior executives insist that his ebullient, in-your-face style coexists with a willingness to listen to others.
“I’ve worked with Jamie for 20 years and he expects and wants direct engagement and feedback. He encourages it,” says Michael Cavanagh, the JPMorgan executive investigating the London mess.
The formula failed this time. Ina Drew, the former head of the bank’s chief investment office, who lost her job for playing down the seriousness of the problem and making Mr Dimon look foolish, was among his closest confidants. She was one of the bank’s top five executives, earning $15.5m last year.
Mr Dimon’s temperament has also proved a liability in the past. He was fired from Citigroup in 1998 by Sandy Weill and John Reed after a physical altercation with Deryck Maughan, his co-CEO of the corporate bank.
It takes an exceptional board to stand up to such a wilful figure and JPMorgan’s board is not set up to do it. As Robert McCormick, chief policy officer of Glass Lewis & Co, an investor advisory group that supports the division of Mr Dimon’s jobs as chairman and chief executive, says: “It is potentially insurmountable conflict. How can you oversee yourself?”
That question applies to any company at which the chief executive also chairs the board, but particularly to banking institutions, where risk oversight is vital. They can easily boost revenues by taking on trading or lending risk. The question is whether they are doing it wisely. In this case, clearly not.
At the annual meeting this week, Mr Dimon rejected criticism of his membership of the New York Federal Reserve’s board of governors: “It is not like a board. It is more of an advisory group, in my opinion,” he said. My suspicion is that he regards his own bank’s board in the same manner.
He says not. Lee Raymond, the tough former chairman and chief executive of ExxonMobil, is the board’s lead independent director and Mr Dimon is the only executive on an 12-member board. That is in line with the Group of Thirty’s call for a board to operate “efficiently, cohesively and decisively”. All the shareholders have an equal vote.
But neither the shareholders nor JPMorgan’s regulators ought to be happy to let Mr Dimon carry on wielding undivided power at the top. He promised this week to “admit our mistakes, learn from them and fix them”. There is an obvious lesson in corporate governance for him to apply to himself.