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May 22, 2013

JPMorgan Shareowners Vote on Corporate Governance and Genocide-Free Investing
    by Robert Kropp

A resolution calling for the separation of the positions of board chair and CEO gains the votes of one-third of the bank's shareowners, while support for a genocide-free investing proposal increases. -- At the annual general meeting of JPMorgan Chase this week, one-third of the financial institution's shareowners voted in favor of a resolution, filed by the American Federation of State, County & Municipal Employees (AFSCME) and a coalition of co-filers, calling for the separation of the positions of board chair and CEO. Jamie Dimon has held both positions since 2006, before the financial crisis and years before the London Whale episode resulted in billions of dollars of trading losses for the firm.

At last year's AGM, held just days after news of the London Whale broke, 40% of shareowners voted in favor of splitting the positions. The run-up to this year's meeting featured what The New York Times described as an "unusually proactive" campaign to convince shareowners to vote against the resolution, as well as reports that Dimon had suggested he would leave JPMorgan if the shareowner vote attained a majority.

The mainstream media has sought to portray this year's vote as a victory for Dimon, neglecting to point out that two consecutive years of substantial votes in favor of a resolution so vigorously opposed by management indicates ongoing concerns on the part of shareowners. And the low votes tallied by three members of the board's risk policy committee strongly suggest that those concerns remain, despite the lower percentage of votes cast in favor of the resolution.

"The proposal may not have passed today but concerned shareholders expressed their desire for a company that is run by a board that holds management accountable," said AFSCME President Lee Saunders. "The effort doesn't end today. There is still a clear conflict of interest when a company's board of directors, which is responsible for overseeing the company's CEO, is chaired by the CEO."

While he was an analyst for GMI Ratings, Paul Hodgson co-authored a report widely cited by advocates for splitting the positions as an exercise in effective corporate governance. The report concluded, "Five-year shareholder returns are nearly 28 percent higher at companies with a separate CEO and chair."

Furthermore, Hodgson wrote in Forbes this week, "Employing a combined CEO and chair was not only vastly more expensive than employing a separate CEO and an independent chairman (combining the cost of both those positions is only 57 percent of the cost of a combined CEO/chair) but it also presents a higher ESG (environmental, social, governance) risk profile."

Hodgson pointed out that seven of the ten largest owners of JPMorgan are funds whose CEOs also serve as chairmen. And the two presiding directors on JPMorgan's board—William Weldon and Lee Raymond—held both positions at their companies before retirement.

"It looks like threatening to resign worked as a tactical move, if not a particularly sophisticated or mature one," Hodgson wrote. "It looks like self-preservation among fund CEOs, sitting CEOs, and other interested parties 'won' the day."

Dimon's early efforts to trivialize the implication of the London Whale debacle are well-documented, but at this year's meeting another significant, and perhaps even more troubling, blind spot in his governance emerged. Eric Cohen, chairperson of Investors Against Genocide (IAG), presented a resolution calling on the bank to develop a genocide-free investing policy. JPMorgan is one of the largest owners of PetroChina, an oil company whose payments to Sudan has contributed to that government's genocidal campaign in Darfur.

Pointing out that JPMorgan is a signatory to the United Nations' Principles for Responsible Investment (PRI), Cohen asked at the meeting, "How can a company that accepts these responsibilities fail to act against genocide 68 years after the end of the Holocaust and 19 years after the genocide in Rwanda?"

What was Dimon's response to Cohen's questioning? That "he doesn"t know the specifics of PetroChina," Cohen wrote. Perhaps even more surreal was the response from presiding director Raymond, who before his retirement was chairman and CEO of ExxonMobil. "I echo Dimon," Raymond said at the meeting.

"It is astounding that Mr. Dimon and Mr. Raymond are unaware of the widely-recognized view that PetroChina, as Sudan’s largest business partner, is clearly linked to the ongoing government-sponsored genocide in Sudan, given that our genocide-free investing proposal has been on the ballot at JPMorgan for three years," Cohen wrote. "The fact that Mr. Dimon and Mr. Raymond are not taking the problem of investments in PetroChina seriously while maintaining a $2 billion investment in the company shows a callous disregard for the important responsibility their company has to align investors with the broader objectives of society."

IAG's resolution gained the support of 8.1% of shareowners this year, an improvement over the 7.4% vote at last year's meeting.

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