JPM Chairmanship Issues. Why Jamie Dimon Cannot Be Replaced Just Yet
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JP Morgan (NYSE: JPM) lost a lot of money almost by accident. Jamie Dimon who holds both the position of Chairman and CEO has become the subject of much criticism. A lot of other executives would be understandably sucking their thumbs by now. Corporate governance activists point to his holding both the Chairmanship and CEO posts claiming it's a prescription for problems. Right now that line of reasoning looks and sounds very good. Perhaps impeccable.
If you strip Jamie Dimon of one of the posts in the context of the $2 billion trading debacle you would acknowledge his responsibility in the affair. If he is culpable than he should not be employed in any fashion. Splitting the two positions for now would not really do it.
Take a look at the Board. They ultimately have final authority and responsibility. While you have many very accomplished people on the board, none of them have any substantive experience in running a financial institution or even a part of one. No one has any experience in trading financial instruments or derivatives. I suspect no one has a substantial math back ground that could ground your ability to understand derivative trading strategies. You have a Lee Raymond who was the former Chairman and CEO of Exxon Mobil (NYSE: XOM) who may know a thing or two about trading of oil and gas, but it may not be enough. His educational background is chemical engineering. Clearly very technical but not math based. Any available public resume indicates there is no background in oil and gas trading. Given that the price of oil is constantly referred to in financial media it means that someone else was in charge of trading and hedging oil and gas. understanding the trading culture is a void for this man. He does serve on an advisory committee panel to Kohlberg Kravis Roberts & Co. All this makes him connected corporately, but not in the trading rooms.
So the board's experience level is low on banking and high on reliance on Jamie Dimon. Not necessarily a good thing because if Jamie Dimon gets it wrong you can lose a lot of money which is exactly what went wrong.
Looking at the board, there are a lot of members who were both Chairman and CEO back in their day. So from a governance point of view they probably do not see it as a problem. We just mentioned Lee Raymond in that category. We can add David Novak of Yum Brands (NYSE: YUM), who actually has just stepped down so he can focus exclusively on Yum brands. But again a marketing guy with a consumer foods orientation and no background in commodities trading which is huge in agri-business. William Weldon of Johnson and Johnson (NYSE: JNJ) who until just weeks ago was both Chairman and CEO, But I believe his vacating the CEO position has more to do with transition and orderly succession. Finally David Cote of Honeywell (NYSE: HON) also served as both Chairman and CEO/President. David Cote sits on the same panel as Lee Raymond advising Kohlberg Kravis Roberts & Co on something or other. David Cote has served on various Obama related committes. Given Jamie Dimon's propensity to cross swords with financial regulators there could be some interesting back channel conversations. But certainly not about one individual holding both the chairmanship and CEO roles.
The corporate governance conundrum was predictable. Key players on the Board have all been Chairman and CEO. So they see nothing wrong when they sit on someone else's board with the same set up. Birds of a feather flock together. And this is why we need robust regulation.
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