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Proxy Monitor Finding 2: Dimon vote looms

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This morning, the Manhattan Institute released my latest finding in the Proxy Monitor series: 2013 Proxy Season Underway: JPMorgan Chase Chairman vote looms large in busy May proxy season. As of May 3, 175 of America's 250 largest publicly traded companies, tracked in the ProxyMonitor database, had filed proxy documents and 72 of these had held annual meetings. In addition to summarizing proxy submission and voting results to date, I look at JPMorgan Chase's looming --and widely publicized--May 21 annual meeting, in which shareholders will consider a proposal sponsored by the pension fund of the American Federation of State, County, and Municipal Employees (AFSCME) to separate the bank's chairman and CEO positions, which the market may read as a referendum on the leadership of incumbent chairman and CEO Jamie Dimon--and which may, if the board reacts to the vote by stripping him of his chairmanship, prompt Dimon to leave the bank he steered ably through the financial storm.

Key statistics on filings to date include:

  • The average company has faced only 1.10 shareholder proposals, down from 1.21 in 2012 and 1.18 in 2011.
  • In keeping with 2012, a plurality of shareholder proposals in 2013 involve corporate political spending or lobbying--up this year to 23 percent, from 19 percent last year. In contrast to 2012, however, a majority of such proposals this year involve lobbying.
  • Although the share of corporate-governance-related proposals has fallen overall, certain types of proposals--including those seeking to separate a company's chairman and CEO position and those seeking to empower shareholders to call special meetings or act by written consent--have been introduced with somewhat greater frequency in 2013, relative to 2012.
  • The percentage of shareholder proposals sponsored by investment funds with a "social investing" purpose, a public-policy orientation, or a religious affiliation has gone up from 22 percent in 2012 to 26 percent in 2012. Eight Catholic orders of nuns or monks introduced 11 total shareholder proposals in 2013, up from only three in all of 2012.
  • Two individual "corporate gadflies" and their family members or family trusts--John Chevedden and William Steiner--have sponsored 25 percent of all proposals this year. Gadfly-backed proposals constituted 29 percent of all proposals in 2012; their modest decline this year is due to the fact that a long-time gadfly, octogenarian Evelyn Davis, has not been active in the 2013 proxy season.
Among key voting results to date:

  • Ten proposals out of the 87 voted on at Fortune 250 companies through May 3 received majority support. Six of these sought board declassification (of seven such proposals introduced), three (of four) sought majority-voting requirements to elect directors, and one (of three, through May 8) sought proxy access for shareholders' proposed directors.
  • On average, the 17 shareholder proposals involving political spending or lobbying in the Proxy Monitor database have received 18 percent support to date--identical to support levels in 2012.
  • Among the 18 companies in the Proxy Monitor database that faced proposals seeking to separate the chairman and CEO roles, shareholder support has averaged 27 percent to date, down from a 34 percent average last year.
  • Since Navistar's shareholders voted against its executive-compensation plan in February, no Fortune 250 company has seen a majority of its shareholders vote against its pay package. Four companies received less than 70 percent support: Goodyear (4/15, 56 percent support), eBay (4/18, 60 percent), Humana (4/25, 65 percent), and U.S. Steel (4/30, 64 percent). The proxy advisory firm ISS opposed the pay package at each of these companies.
  • At its May 3 annual meeting, the shareholders of Occidental Petroleum decisively voted out the executive chairman of the company's board, Ray Irani. 76 percent of shareholders cast votes against the director, the company's chairman and CEO from 1990 through 2011.
Over the next ten days, ten companies will face proposals related to political spending or lobbying and seven calling on the company to separate the chairman and CEO roles. Century Link faces a proxy access proposal at its May 22 meeting.

Two companies' annual meetings stand out as ones to watch in coming days: Hess Corporation, meeting May 16, and JPMorgan Chase, meeting May 21.

At its May 16 meeting, Hess faces a proxy fight with the hedge fund Elliott Associates, which is seeking to elect its own slate of alternative directors. (Disclosure: Elliott's founder and principal, Paul Singer, is chairman of the Manhattan Institute for Policy Research.) Elliott owns over $800 million in Hess's common stock and seeks to improve the performance of the company, and its effort has generated a robust debate online.

In contrast to the Elliott-Hess effort--which, however one judges its specifics, is a classic case of a large private investor trying to shake up underperforming management after putting a lot of its own money on the table--the JPMorgan proposal is part of a broader campaign, being led principally by public-employee pension funds, to change governance practices at a broad range of companies, with little regard to their performance. Two of the four union-affiliated co-sponsors of the JPMorgan proposal--AFSCME and the pensions for public employees in New York City--have been the most active sponsors of this proposal type since 2006.

It's also unclear that separating the chairman and CEO roles is in fact better for shareholders. As Yale School of Management's Jeffrey Sonnenfeld wrote recently in The New York Times:
Curiously, many companies frequently bandied about by shareholder activists as prime examples of the effectiveness of the separation of roles tried it--and dropped it. These firms include IBM, Procter & Gamble, Home Depot, Boeing, Dell, General Motors, Time Warner, and Walt Disney. If this governance structure was so universally priceless, why did the "try it, you'll like it" experiments fail so quickly, with the very boards that had introduced such role separation recombining the leadership roles? Recent research on 309 companies that separated roles between 2002 and 2006 by Matthew Semadeni and Ryan Krause of Indiana University found that the financial performance of high-performing companies was often hurt by the separation. In fact, only 23% of S&P 500 firms have a truly independent director as chairman.

The Semadeni/Krause study isn't the only one out there--and some have gone the other way--but even if one were to assess all such studies and conclude that splitting the chairman and CEO roles is good for shareholders on average (an inference I don't think you can draw from the literature), that hardly implies that it's always a good idea to split the positions. Many of the valuable checks an independent chairman brings to the table can be facilitated through independent compensation and audit committees, or independent lead directors who can act as a useful check against management naturally skeptical of takeover bids.

Furthermore, as Stephen Bainbridge has argued, it's probably a mistake to focus a board's role too much on oversight. A recent study published in the Sloan Management Review assessed the S&P 1500 companies and found that "the most favorable conditions for innovation occurred when the board did not monitor the CEO intensely but focused on strategic advising, thereby encouraging the CEO to pursue valuable but high-risk innovation projects."

Last year, AFSCME advanced a similar proposal at JPMorgan, but only won 40 percent support, notwithstanding the support of leading proxy advisors ISS and Glass Lewis--which backed the proposal again this year. (More broadly, since 2006, among Fortune 250 companies, only 7 of 210 proposals calling for "chairman independence" have netted a majority of shareholders' votes.) This year, AFSCME and its allies hope the outcome is different--and they've focused their campaign on the bank's large $6 billion London trading loss, which was disclosed but not yet fully understood at the time of last year's meeting.

Their problem? Convincing JPMorgan's shareholders that whatever oversight problems contributed to the loss would be improved by removing longtime chairman-CEO Jamie Dimon from one or both of his existing roles. Even with the trading loss, JPMorgan netted over $21 billion in 2012, a 12 percent increase over the prior year, and its stock price since the beginning of 2012 has appreciated by 42 percent. And since December 2006, when Dimon assumed the joint chairman-CEO role, the bank's stock has increased 4 percent--weathering the financial crisis quite nicely. By comparison, Bank of America and Citi saw their shares tumble 75 percent and 91 percent, respectively, over the same period.

1 Comment

I recently finished "The AIG Story" by Greenberg and Cunningham. The actions of Spitzer and Levitt brought tears to my eyes. Now the governance witch doctors want to bring JPMorgan to its knees.

It seems that Mr. Greenberg is at the top of his game again, and AIG is getting well. Martha Stewart, who was convicted by a process that used the presumption of guilt is doing well too.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.