Regular readers know I’m an aficionado of the one section of a company’s annual report most investors ignore: the CEO’s letter to shareholders. It’s a great way for a CEO to talk about what he sees as the company’s biggest successes and disappointments in the year just past, and talk, too, about key risks and opportunities he sees for the future. A well-done CEO letter can tell you a lot about where a company might be headed.
Oh, sure, most are just a bunch of boilerplate—but even that can sometimes be a bit revealing about how a CEO runs his company and views his shareholders. Why the majority of CEOs put so little effort into their letters is beyond me.
I mention all this because CEO letter season is upon us, as a new pile of annuals arrives every day in the mail. Given what the financial services industry went through last year, I’ve expected more letters than usual to be interesting and in-depth. So far, that’s been the case. Five letters stand out: those from BB&T (NYSE:BBT), Berkshire Hathaway (NYSE:BRK.A), JPMorgan Chase (NYSE:JPM), M&T Bank (NYSE:MTB), and Wells Fargo (NYSE:WFC). And even among those five, one is head-and-shoulders above the rest: Jamie Dimon’s letter to holders of JPMorgan Chase. Anyone with an interest in financial services should read the whole thing.
Jamie covers all the bases, and well. First, he provides an in-depth discussion of how JPMorgan Chase did last year--both overall and by line of business. His discussions are neither whitewashes nor mushes of jargon. Jamie is clearly aiming his discussion at the intelligent non-specialist. So, for instance, before he gets into the nuts and bolts of each LOB’s results, he devotes a section describing what the line of business actually does. That’s very helpful in framing the rest of the discussion—and tells you a lot about Jamie’s ability to put himself in the shoes of his shareholders. Similarly, he ends each line of business discussion with a section, “How we intend to grow” that offers a realistic, hard-headed appraisal of the future. It’s terrific.
Next, Jamie spends a fair amount of time discussing how JPMorgan manages its people. In most CEO letters, of course, this is an obligatory section, which usually amounts to a quickie paragraph larded up with the usual blather about how “people are our most important asset,” that the CEO obviously doesn’t believe, and obviously doesn’t expect his readers to believe he believes, either.
In the JPMorgan letter, by contrast, Jamie gives us a nine-page meditation on training, compensation, and leadership that deserves to become part of the syllabuses of business schools across the country. If you have any doubt about how and why Jamie Dimon is among the most effective managers in corporate America, you won’t after you read what he says about developing and managing people.
In the third section of the letter, Jamie lays out his views of the country’s current regulatory system and some of the changes to it being considered by Congress. You may or may not agree with everything he has to say (for myself, I think he’s mistaken to support the creation of a systemic regulator), but you won’t doubt that he’s thought through the issues thoroughly and with great care. I wish more financial services CEOs would spend more time in their letters giving their views on what changes need to be made to the existing regulatory structure. Taken together, those views would be a helpful and worthwhile addition to an important debate.
In the final section, Jamie offers some big-picture thoughts on what he sees as the public policies needed to help ensure the success of JPMorgan and the rest of corporate America, and some views, too, about the role JPMorgan and corporate America should play in ensuring the country’s ongoing success.
Jamie Dimon’s record as CEO of both BankOne and JPMorgan Chase has been impressive by virtually any yardstick one can come up with. He deserves the admiration he gets from his peers, his investors, and the media. Jamie’s 2009 letter is a terrific window into the way he views the world. I urge you to take a moment to read it. (Actually, not just this year’s letter, but all his JPMorgan letters going back to 2004.) I hate to say this, but, to me, Jamie has taken Warren Buffett’s spot as the financial services industry’s most thoughtful CEO-commentator. (Sorry, Warren—but I’m still a fan!)
Finaly, here are some selected quotes from this year’s letter that provide good examples of both Jamie’s thoughtfulness and his candor:
- “We did not suffer a loss in any single quarter over the two year crisis (we may have been one of the few major global financial firms to achieve this). In absolute financial terms, however, our results were mediocre.”
- “We anticipate that this portfolio (home lending) will continue to lose money for the next three years (excluding reserve changes) as we work through a backlog of problem loans.”
- “By all measures, 2009 was a terrible years for credit card business.”
- “Poor CEO succession has destroyed many a company. CEO and management succession often seems more like a psychological drama or a Shakespearean tragedy that the reasoned and mature process it should be. It is in our best interest to avoid such drama.”
- “While I deeply believe in loyalty, it often is misused. Loyalty should be to the principles for which someone stands and to the institution: Loyalty to an individual frequently is another form of cronyism.”
- “At JPMorgan Chase, we put a great deal of time and thought into designing compensation plans that attract and motivate good people and reward good behavior. Of course, compensation aside, we always expect our people to do the right thing. A badly designed compensation plan never is an excuse for bad behavior.”
- “In fact, in our business, on financial or quantitative measures and ignoring qualitative measures can be disastrous. Good performance in a particular year does not necessarily indicate that the individual did a good job.”
- “While we aim to be a company that pays its employees well, it should be because we have a well-performing company.”
- “Ownership does not guarantee that our employees will act like owners, but it certainly improves the odds.”
- “We should focus on building good regulation -- not simply more or less of it.
- “I do regret having used the FDIC [debt] guarantee because we didn’t need it, and it just added to the argument that all banks has been bailed out and fueled the anger directed toward banks.”
- “Bad outcomes are not always someone else’s fault—we need to cultivate an environment where consumers, lenders, borrowers, businesses and investors all take responsibility for their actions and don’t look for someone else to blame.”