Counterparties: Split personalities

May 6, 2013

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Institutional Shareholder Services’ message is clear: no one man should have all that power.

More specifically, ISS has declared Jamie Dimon shouldn’t be JP Morgan’s chairman and CEO. The firm, which advises shareholders on corporate voting, is also recommending that its clients not support the reelection of three of the bank’s directors. Each of those directors — David Cote, James Crown and Ellen Futter — sits on the bank’s risk committee. The proposal to split the roles of chairman and CEO is non-binding; the re-election of board members is binding. It’s unclear whether either measure will pass.

The risk committee, whose oversight failed spectacularly prior to and during last year’s $6.2 billion trading loss, has no members who have worked at a bank or as financial risk managers. ISS called the committee members’ “lack of robust industry-specific experience” odd, particularly compared to their counterparts at JPM’s competitors.

The WSJ’s Francesco Guerrera wrote last month that the era of the “imperial chief executive” might be winding down on Wall Street. The trend goes beyond finance. Boeing and GE faced (and defeated) proposals to split the roles of chairman and CEO this year. With shareholders demanding more scrutiny of management, the “current Wall Street incumbents are likely to be the last ones to hold a dual role”.

Dimon does have at least one high profile shareholder on his side. Warren Buffett says he is “100% for Jamie… I couldn’t think of a better chairman”, which is no surprise to Jonathan Weil. JP Morgan and Berkshire Hathaway share a director (Stephen Burke), and Buffett is a JP Morgan shareholder. The avuncular investor is also chairman and CEO of his own company, but tellingly, that won’t continue past his lifetime.

Shareholders may be able to take comfort in executives’ discomfort. One study found that “companies that had separated the two roles received a 28-percent higher five-year return”. – Ben Walsh

On to today’s links:

NY attorney general to sue BofA and Wells Fargo over mortgage practices – Reuters

The top paying-industry for big-name execs? Media – NYT

The average student pays just 55% of the advertised price for college – WSJ

Austerity Bites
The era of austerity is over, according to the French finance minister – Bloomberg
“There probably will not be any major changes in Europe until after Merkel’s reelection” on Sept. 22 – Calculated Risk

The Supreme Court under Roberts is the most business-friendly court since WWII – NYT
“How business fares in the Supreme Court” – Minnesota Law Review
MBIA, Bank of America reach legal settlement – Reuters

BMC Software agrees to $6.9 billion acquisition by private equity group – Reuters
The deal is a win for private equity, and for major shareholder Elliott Management – DealBook

New Normal
The recovery is non-existent if you don’t have a college degree – Josh Brown

Possibly Useless Data
“The data crunchers are invading Hollywood” – NYT

Are stock buybacks in the interest of shareholders or CEO bonuses? Both. Maybe. – WSJ
“Buybacks are an efficient way of returning money to shareholders of a shrinking company” – Felix

If you’ve ordered mutton in China recently you may have eaten rat – Reuters

Is Soros shorting the Australian dollar? Someone seems to be – Sydney Morning Herald

The Instagram story: From launch to a $1 billion sale in 18 months – Kara Swisher

And, of course, there are many more links at Counterparties.

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