After listening to the media trash JP Morgan's (JPM) Jamie Dimon for the past year, and following the recent uproar caused by proxy firm recommendations that shareholders vote to separate the company's Chairman and CEO functions, I simply cannot sit by any longer without speaking up in Dimon's defense.
Splitting the functions might make sense if Dimon's performance hadn't been so extraordinary since he became Chairman and CEO in 2006, but given his stellar leadership record, I don't see any logic under which splitting the functions make sense. It's certainly not unusual in this or any other industry to combine the functions of Chairman and CEO. And, seriously, who do they think is going to do a better job in either of the roles than Jamie Dimon?
I, for one, am going to continue to own JPM shares and to vote for management at the May 21, 2013 Annual Meeting.
What is the problem the proxy firms are trying to solve, here?
Two independent proxy advisory firms - ISS and Glass Lewis - have advised JPM shareholders to vote to separate the functions of Chairman and CEO.
They say: "Research suggests that combining the positions of Chairman and CEO may hinder a board's decision to dismiss an ineffective CEO."
I say: Really? The operative words here are "may hinder" and "ineffective CEO." Combining the positions didn't keep Citigroup (C) from ousting Chairman and CEO Chuck Prince in 2007. And we're not talking about a wussy, un-invested Board that's going to have any problem firing an ineffective CEO here, either. Nor, by any stretch of the imagination, for that matter, are we even talking about an ineffective CEO.
In fact, the current JPM Board backs Dimon - including former Johnson & Johnson (JNJ) Chairman and CEO William Weldon, and Lee Raymond, past Chairman and CEO of Exxon Mobil (XOM), as well as James Crown, who (along with partnerships he controls) owns nearly 11.5 million shares of JPM stock worth over a half billion dollars. I can't believe that anyone is more qualified to speak on this matter than these captains of industry who have watched Dimon "up close" all these years. Given their backgrounds and what they personally stand to lose, do you think they'd have any trouble dismissing Dimon if they felt for a minute he wasn't being an effective CEO?
They say: The split is necessary due to "The governance failure in connection with the CIO incident, the size and complexity of JPM's business, and the continued challenges faced by the company."
I say: First of all, the "CIO incident" to which they're referring and which ultimately cost JPM $6.2B last year was an isolated case of hubris-run-riot on the part of a lone trader, aka the London Whale. Did the Whale really consider whether the offices were separated before he put on his trades? I doubt it. And I don't see how having separate Chairman and CEO functions would in any way have altered oversight of the Whale at the Chief Investment Office level, or for that matter, minimize risk of future incidents of the sort.
Their second point here makes even less sense to me. JPM is not that much more complex today than when Dimon assumed the dual roles back in 2006. Plus, plenty of larger and more complex organizations are getting along just fine with combined Chairman and CEO functions.
Finally, what are the continued challenges they're imagining pose such a threat to JPM? Today's challenges are nothing compared to what they were in 2008 during the worst financial meltdown in the history of corporate America. Which, by the way, JPM weathered better than any other large bank in the country, so wouldn't it be more logical to conclude that the combined functions were a source of the company's strength?
Is it really a problem to combine Chairman and CEO functions?
They say: "Research suggests that combining the positions of Chairman and CEO" is problematic.
I say: What research? My research suggests that combining the positions works in favor of shareholders at least as often - arguably more often - than it works against them.
For example, Goldman Sachs' (GS) Lloyd Blankfein has successfully managed the dual roles since 2006, as did his predecessor, Henry Paulson. Wells Fargo's (WFC) John Stumpf has filled both roles since 2010, as did his legendary predecessor Dick Kovacevich for seven years, plus several years before that at Norwest Corp. Richard Davis is currently in his sixth year as Chairman and CEO at US Bancorp (USB). These aren't just large banks, they're among the world's most successful banks of the past decade, as you'll see from the chart below.
In contrast, two banks that do have separate Chairman and CEO functions - Bank of America (BAC) and Citigroup - were inarguably bad investments for shareholders over the same time period.
Bank One/JP Morgan*
Bank of America
*Adjusted to reflect the 1.32 shares of JP Morgan received for each share of Bank One
**Adjusted for the 1 for 10 reverse stock split
Who are these proxy advisors anyhow?
All this got me wondering who these people are advising shareholders and what else are they recommending to shareholders that's clearly not in our interests. Do they have any actual experience with what they're talking about?
Looking beyond JP Morgan, I see that both ISS and Glass Lewis are backing HopFed Bancorp's (HFBC) management in its proxy battle with the Stilwell Group. Really? No savvy investor would support this bank's management. HopFed's shares were trading over $14 in 2010 and had a $22.78 book value per share. Current management then went on the road promising 40% growth to convince investors to buy a secondary that was priced at $9 and that diluted book value to $16. HFBC wallowed below $9 until Stilwell came along and asked for a board seat since the growth never materialized. The only things that grew at HFBC in the past few years were NPAs, perks and salaries.
What these proxy advisors are proposing runs counter to my own personal, first hand experience, as well - not only investing in and closely following banks for over 25 years, but serving on a number of bank boards. For example, in 2003, when Community Bancshares Inc (COMB) was recapitalized, I became the largest shareholder and later joined the Board of Directors. Patrick Frawley held the dual role of Chairman and CEO. A strong person to lead both the Board and the Company was exactly what the bank needed. By 2006, Community was solidly back to profitability and accepted a $98M buyout offer from another bank.
So why do I stand behind Dimon?
That's simple. I believe there's neither a better, nor more qualified candidate for Chairman or CEO of JP Morgan than Jamie Dimon.
- Dimon's Devoted. When Jamie Dimon was made Chairman and CEO of Chicago's money-losing Bank One Corporation (ONE) in March of 2000, the first thing he did was purchase 2,000,000 shares in the open market for $56,000,000 saying "Ownership is a critical thing, you need to run it like it's your own." Dimon now owns 5,774,852 shares worth $284,000,000 including 500,000 shares he bought just last summer in the open market in the midst of the London Whale publicity. This man puts his money where his mouth is. Anything that hurts shareholders, hurts him as deeply and directly as anyone.
- Dimon Delivers. When Dimon took over Bank One, it was a mess. ONE stock had declined from $60 to $28 on the eve of Dimon's hire. The bank was losing money. Four years later, Chairman and CEO Dimon presided over the sale of ONE to JP Morgan for $51.35 per share. Those JPM shares are now worth $64.62. That's an increase of 132%! Plus investors have received over $17 in dividends. Additionally, Dimon has grown JP Morgan's book value from $25 per share in 2004 to $52 per share.
In short, I'm behind Jamie Dimon because he has clearly outperformed his peers over the past 13 years. He's staked his family's financial future on his performance unlike any other CEO I can think of except Warren Buffett. (Who, by the way, also stands behind Dimon serving in both roles.)