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Jennifer Taub: Fight over resolution making CEO Dimon give up board chairman’s job shows what an oxymoron “shareholder democracy” is; concentration of power is extreme in the worlds biggest bank

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

On Tuesday morning in New York, JPMorgan Chase will be holding its annual meeting, and there will be a shareholders resolution there which advocates the splitting of the job of chairman and CEO, now both held by Jamie Dimon.

Now joining us to talk about the significance of this perhaps fight at the shareholders meeting is Jennifer Taub. She’s an associate professor at Vermont Law School. Prior to that, she taught at the Isenberg School of Management at the University of Massachusetts Amherst. And she was also an associate general counsel at Fidelity Investments.

Thanks for joining us.

JENNIFER TAUB, ASSOC PROF., VERMONT LAW SCHOOL: I’m glad to be here, Paul. Thank you.

JAY: So what’s going to happen at the shareholders meeting? And why does it matter?

TAUB: Well, I expect the outcome to be pretty similar to what happened last year. A similar resolution was put before the shareholders. And what this is: it’s a nonbinding vote. And last year, 40 percent of the votes supported separating the role of chairman from CEO. In other words, last year, 40 percent of the votes cast, which was over 1 billion shares voted, wanted Jamie Dimon to be stripped of that chairmanship role. And even though 40 percent is not a victory, it’s actually a pretty large number, considering that on almost all shareholder resolutions management is supported. So I expect the outcome to be fairly similar. And not many people expect it to pass.

JAY: So why is this significant, then, if this is kind of pro forma, what’s going to happen here?

TAUB: Well, it’s not–although I don’t expect it to pass, it’s not likely, it’s still reasonably possible. And I think it’s more than symbolic. This is a referendum both on Jamie Dimon’s performance, as well as the question of whether financial institutions are right now too big to manage.

And if you look at JPMorgan Chase, it is the largest bank in the United States. It has more than $2 trillion in assets. And, in fact, if you use international accounting standards, which would fully or more fully account for the derivatives the bank has on its balance sheet, it would have more than $4 trillion in assets and then really be the largest bank in the world. So it’s important in that this is in some ways, as I said, a referendum on too big to fail and too big to manage, but it’s also shareholders trying to wrestle from managers control over a corporation that is supposed to be run in their interests.

JAY: Well, it seems like, first of all, the biggest bank in the world, and more or less run by one guy when he has both these positions, there’s no accountability to a board when he runs the board. I don’t even understand this annual meeting, then, if they can only recommend to the board. I don’t understand a shareholders meeting that can’t actually vote in some way that makes decisions on these things. So even if they had a majority decision to split this position, the board wouldn’t have to do it.

TAUB: Yes. I mean, shareholder democracy, as it’s called, is somewhat of an oxymoron. And that can be seen not just in this nonbinding vote, but also in how directors or members of the board of directors are elected. So tomorrow 11 members will be up for reelection, including Jamie Dimon. And each of them is running contested, meaning there are 11 seats on the board available and there are 11 candidates. So even if a majority of shareholders doesn’t support each and every one of those candidates, they will not likely step down from their positions.

JAY: Now, do we know how the shares are owned in JPMorgan Chase? Like, who owns the biggest whack of shares? I mean, you would think–is it because the big shareholders are represented on the board? They don’t care what happens at the shareholders meeting?

TAUB: It’s a little bit of the opposite. Let me just tell you about last year’s vote to give you a sense of it. Last year, about 83 percent of the outstanding shares were actually present and voted at the meeting. And the fact that 40 percent wanted Jamie Dimon to step down from chairman tells us that a number of institutional investors–and not just activist union pension plans and government and state and local pension plans, but also institutional investors who represent purely private interests–voted against him. So on the one hand, yes, the swing votes.

Right now, the difference between passing this resolution and not passing really right now will be determined by large institutions. And it’s not clear what the tally is at the moment. There’s a firm called Broadridge that keeps the tally of votes. And from stories in the press recently, it seems that there are a few large money managers, including Blackrock and some of the mutual fund families, that will make the difference here. And some big managers have announced how they’re voting, for example, those that say they’re voting to strip him of that role, and others that say they’re standing by him. But there are still unknowns at this moment.

JAY: Now, part of the background for this is JPMorgan had some enormous losses out of its London office. And again there’s been–what accountability has there been for any of that?

TAUB: So, right. The so-called London Whale trades which resulted–which went from what Jamie Dimon said initially was a tempest in a teapot, grew to a couple of billion dollars, and now we find out we’re actually at about $6.2 billion in trading losses, was part of what inspired last year’s vote.

Since then, there have been some positive things that have occurred for Dimon and some more negative things. So, for example, folks who support him claim that, look, the stock price is up, the return on equity is up. Folks who believe that, you know, no man should operate without a boss are looking at–are questioning some of those earnings, which I’ll get to in a moment, but also looking at the increasing number of regulatory actions and risk management problems since the London Whale episode. And so even though Dimon has taken responsibility, at least, you know, sort of verbally and taking a pay cut, there will still be more fallout from the alleged coverup of the losses.

And there have been other regulatory actions. Recently there was a report leaked to the press that the Federal Energy Regulatory Commission is pursuing action against JPMorgan Chase for manipulating energy markets in California and Michigan. And it reminds folks of Enron. There’s also been money laundering settlements. There have been settlements with the SEC regarding sales of CDOs and residential mortgage-backed securities. And there–the list kind of goes on and on. And really, you know, a day or a week doesn’t go by where there’s not another announcement of some regulatory concerns at the firm. And in Jamie Dimon’s letter to shareholders, he admitted that there was more to come. So this seems to reveal problems in the firm’s risk management reporting and practices.

JAY: I suppose the logic amongst most of the shareholders is: as long as you’re making us money, we don’t care how you’re doing it. But let me ask a question. How big a player in all this are union pension funds? ‘Cause there’s been–you know, a lot of people have criticized the unions that they kind of critique the banks and they have lots of–even the occasional protest and statements and all that. But where they have real clout through their pension funds, they don’t exercise that clout in any way to make the banks more accountable.

TAUB: I guess a couple of things. First, to your comment before, I mean, shareholders do want returns, but they want sustainable returns, not smoke and mirrors and surprises later that, first of all, a big settlement comes, and not only is there a $1 billion settlement to be paid, but also practices need to change, and suddenly earnings, you know, can’t keep growing. So I think shareholders want sustainable returns.

In terms of the union pension funds, this resolution this year to break up the chairman and CEO role was sponsored by a few funds, including the AFSCME and including the New York City pension fund and the state of Connecticut. So, as it happens, the union and the public pension funds tend to be the types of institutional shareholders who are willing to put their names on these proposals. But–.

JAY: Why don’t they contest for a board seat or two instead of just going along with the slate?

TAUB: So there are–in terms of the board this year, there are about three board members who have been targeted for folks to vote against, including members of the risk policy committee. And there was a wonderful quote from Anne Simpson of the CalPERS, the California, large California pension plan, and she described the problem on JPMorgan’s board is that so many of the board members lack any financial firm or financial background that will qualify them to oversee risk at the largest financial institution in the U.S., if not the world. And so, for example, one of the board members being targeted by folks is Ellen Futter, who is president of the American Museum of Natural History, which is obviously a wonderful institution. You know. But this is a person who doesn’t have banking background, and also happened to be on the board of directors at AIG when its collapse nearly brought down the whole financial system. So shareholders are doing that.

I mean, I think it’s a separate–maybe your question is also why don’t they try to actually have proxy contests and try to get their own board members.

JAY: Yeah, that’s what I’m–that’s why I’m asking you, because before you said that, you know, even if they were successful in, you know, sort of recommending against this board member, there’s nothing that says that board member has to step down. It’s just a recommendation.

TAUB: Right. And so it’s interesting. We’re quite different from many European countries. And European countries often labor, meaning folks who work at a firm get representation on a board. But in the U.S. right now there are two routes to trying to get a board member, a dissident board member elected, and the first phase is to have what’s called a proxy contest. Proxy refers to this document that’s sent, this invitation to the annual meeting that includes the votes. It’s called a proxy because you use another firm to vote for you by proxy you get from Broadridge. But at any rate, a proxy contest is where shareholders who want representation on the board actually have to send their own separate mailing that they pay for to the existing shareholders with their own slate of candidates. And those are very expensive, and at a large firm it’s very hard to get one of those passed.

There’s another route where shareholders could try to–well, the other route, which the Congress actually included in the Dodd-Frank legislation, required the Securities and Exchange Commission to allow eligible shareholders to actually get their nominees on the ballot so they’d be included in the mailing that goes out to all shareholders and the candidates that would be competing for seats would be on the same ballot. But this rule that was enacted–and, by the way, it wasn’t–you couldn’t have–it was a limited number of dissident candidates. But at any rate, this rule that was enacted by the SEC was struck down in the D.C. Circuit due to what the court [incompr.] the SEC’s failure to engage in a robust cost-benefit analysis.

So, at any rate, it is very difficult to change the composition of the board. But yet again, the shareholders can register their displeasure by not casting votes in favor of the board members they would like to step down.

JAY: Okay. Thanks very much for joining us. And I assume by the end of this shareholders meeting it will still be the Jamie Dimon show.

TAUB: I think that’s right.

JAY: Okay. Thanks for joining us.

And thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Jennifer S. Taub and John Weeks

Jennifer S. Taub is an Associate Professor of Law at the Vermont Law School where she teaches contracts, corporations and securities regulation. Before joining VLS, she taught at the Isenberg School of Management, University of Massachusetts, Amherst. She researches and writes in the area of corporate governance, shareholders’ rights, bankruptcy, and financial market regulation. Previously, Professor Taub was an Associate General Counsel for Fidelity Investments.


John Weeks is Professor Emeritus and Senior Researcher at the Centre for Development Policy and Research, and Research on Money and Finance Group at the School of Oriental & African Studies at the University of London.

John Weeks

John Weeks is Professor Emeritus and Senior Researcher at the Centre for Development Policy and Research, and Research on Money and Finance Group at the School of Oriental & African Studies at the University of London.