The percentage of shareholders voting to separate the chairman and CEO functions actually fell from last year’s 40% to just 32% at this year’s annual general meeting. Shareholders blinked when Dimon telegraphed that he might walk away from the bank were he censured and JPMorgan demonstrated that whatever issues might come with being too big to manage easily, it can still mount a highly effective public relations campaign.
The news cycle was managed efficiently, as JPMorgan first set about reminding investors how the bank has outperformed its peer group in recent years, then managed to raise the prospect of a share price fall if Dimon were to depart, all without making the CEO look petulant.
As a final twist, JPMorgan effectively endorsed a number of reports predicting that the vote could be close to the 50% margin that would have turned into a serious issue for Dimon, even though it would not have been technically binding for the bank. Once that close-call narrative had been established, the actual 32% vote for a top job split could be acclaimed as a ringing endorsement for Dimon.
JPMorgan was helped in its news management by bank stock analyst Michael Mayo of CLSA, the self-appointed gadfly of Wall Street, who put out a report predicting that a sudden departure by Dimon might cause a 10% fall in the bank’s share price, wiping out around $20 billion of market value.
Mayo correctly identified one of the main issues surrounding an unscheduled exit by Dimon, which is the lack of potential successors within the bank. The two bankers currently touted as the lead internal candidates – chief operating officer Matt Zames and co-CEO of the corporate and investment bank Mike Cavanagh – have limited experience in their present roles and would be viewed as untested if they were suddenly elevated to group CEO.
One of the lessons Dimon seems to have absorbed from his own mentor, Citigroup creator Sandy Weill, is to be wary of having a strong number two. Bill Winters, the one-time co-CEO of JPMorgan’s investment bank, was fired in 2009 after he pressed for a greater role at the firm, and his successor, Jes Staley, was pushed out after the London Whale trading losses last year, even though they took place in a part of JPMorgan that Dimon had insulated from control by the investment bank.
Dimon seems to have set his face against the appointment of a president at JPMorgan, who could act as a clear operational number two to his own CEO role. Shareholders who have been agitating for a separation of the chairman and CEO functions at JPMorgan should instead be pushing the bank to ensure that Dimon spends more time grooming a successor in the form of a president.
That would put some noses out of joint among the bankers who failed to get the role – especially if the 42-year-old Zames, a rather abrasive former swap trader, got the nod. But it would at least provide a testing period for the winning executive while Dimon was still around.
A split between the chairman and CEO positions is likely to come anyway after Dimon departs, although shareholders pressing for this change in corporate governance should be aware that it is no panacea for problems at the top of banks.
Plenty of European banks have run into trouble when a chairman was in place to exercise theoretical restraint on the policies of the CEO. And the lesson of the London Whale trading disaster is that even the most successful banks can encounter unexpected problems when they become gargantuan.
No one disputes that Dimon is an extremely forceful manager who gets involved in the details of running JPMorgan, but he seems to have simply missed the significance of the credit derivatives problem until it was too late.
A strong number two with a motivation to extend control over different business units at JPMorgan might provide a better service to shareholders than a new external chairman second-guessing a highly experienced boardroom operator like Dimon.