by Dan Burrows | May 21, 2013 12:52 pm
JPMorgan Chase (JPM) CEO Jamie Dimon will continue being his own boss after shareholders voted down a proposal to strip him of his dual role as chief executive and chairman of the nation’s biggest bank.
That the resolution was non-binding — meaning the board would have ignored it — and that Dimon hinted he would quit if it passed only underscored that this was essentially a perfunctory and farcical display of shareholder democracy.
In theory, the shareholders elect a board of directors, who then hire the management team. The chairman of the board is supposed to be the CEO’s boss.
And after last year’s $6 billion trading loss — the epic London Whale debacle — you can see why some of the bank’s biggest shareholders would want Dimon to be more accountable to … well, someone.
But that’s not how corporate governance works. As long as the management team can keep the stock price rising, the majority of institutional shareholders who sway such votes have absolutely no incentive to shake things up.
Indeed, it would be self-defeating.
CLSA bank analyst Mike Mayo — as tough a critic as they come who has sparred publicly with Dimon — told clients that JPM’s share price would probably fall 10% if Dimon lost the vote and left the firm.
Traders like to say “you can’t fight the tape.” The same goes for those shareholders looking to strip Dimon of his chairmanship.
Forget that the bank avoided being sucked into the vortex of the financial crisis, that it didn’t need a bailout or that it picked up some prized assets (like Washington Mutual) on the cheap. The price performance has been too good under Dimon for shareholders to kick him to the curb.
And that’s all that matters to the big institutions that control the majority of the votes.
Since the pre-crash market peak of 2007, JPM is up 13%, or double the S&P 500‘s performance over the same span. More importantly, JPM’s biggest competitors — Bank of America (BAC) and Citigroup (C) — are down 74% and 89%, respectively, from the previous market peak. See the chart, data courtesy of S&P Capital IQ, below:
More recently, JPM stock is hitting all-time highs. It’s up 15% from pre-London Whale levels — and up 70% from the trading fiasco lows.
Sure, the London Whale cost the bank $6 billion and cost Dimon his formerly blemish-free reputation. But the guy preempted at least some critics by taking a 50%-plus pay cut last year (cough, to $11.5 million from $23 million) and has the stock performing better than both peers and the market.
That’s why the outcome of the vote at JPM’s annual meeting in Tampa was never really in doubt. Not only were all the directors re-elected, but the vote on splitting the chairman and CEO duties actually garnered less support than it did last year.
Dimon didn’t just win; he won without so much as a slap on the wrist.
That’s because JPM is doing too well — and Dimon’s exit would be too damaging in the short-term — for the vote to have gone any other way.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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