Unions' JPMorgan Power Play Is About Labor Organizing, Not Performance
Union Groups Finger Trading Losses in Targeting JPMorgan (top)
Chicago mayor Rahm Emanuel, when serving as President Obama’s chief of staff, verbalized his view of the 2008 financial meltdown with the quip, "You never let a serious crisis go to waste."
Labor union pension funds have taken the mantra to heart this proxy season with respect to the nation’s largest financial institution, JPMorgan Chase.
Tapping into angst and anger over the bank’s $6.2 billion trading loss in London last year, a group of public-employee pension funds have pushed a shareholder proposal calling on the company to strip JPMorgan boss Jamie Dimon of his joint chairman and chief executive role.
The JPMorgan proposal is not a unique effort. Rather, proposals to split corporate chairman and CEO roles have recently been commonplace at America’s largest companies, most regularly by labor-union pension funds.
Since 2006, Fortune 250 companies have faced 210 such proposals, and in both 2012 and 2013, this class of proposal has been introduced more frequently than any other, if one separates out shareholder proposals related to corporate political spending from proposals related to corporate lobbying, as analysts regularly do.
Two of the four union-affiliated co-sponsors of the JPMorgan proposal — the pension fund for the American Federation of State, County, and Municipal Employees (AFSCME) and the pensions for public employees in New York City — have been the most active sponsors of this proposal type since 2006.
What’s interesting about the push for "chairman independence" is the dearth of empirical evidence supporting the idea. Some studies show that companies separating chairman from the CEO creates shareholder value. But at least as many studies show just the opposite.
Even if one credited the former and discounts the latter, it hardly follows that separating companies’ chairman and CEO roles is best for all companies, all the time.
Fewer than a quarter of the largest publicly traded companies fully separate the positions; and many that have done so for a period of time — including JPMorgan Chase — have later reverted to combining the two roles.
The theory underlying a separate board chairman is that a truly independent chairman is more likely to monitor management — driving hard bargains for executive compensation and avoiding conflicts in considering possible sales of the company that can drive up shareholder returns but can cost CEOs their jobs.
But alternative board structures — including independent compensation committees and "lead independent directors" to consider takeover bids — can achieve similar ends.
Moreover, continually increasing boards’ role in monitoring directors — the rationale underlying much of the regulation flowing from the 2002 Sarbanes-Oxley and 2010 Dodd-Frank reforms — is not cost-free.
A recent study published in the Sloan Management Review assessed the S&P 1500 companies and found "the most favorable conditions for innovation occurred when the board did not monitor the CEO intensely but focused on strategic advising, thereby encouraging the CEO to pursue valuable but high-risk innovation projects."
Perhaps unsurprisingly, then, shareholders have generally been hesitant to support proposals calling for separating the two roles. Since 2006, 210 such proposals have been introduced at Fortune 250 companies, but only seven won majority support (and never more than 55%).
In general, shareholders have voted for these proposals only when management has been viewed as underperforming. Thus, the labor activists backing the proposal at JPMorgan have focused on the $6 billion London trading loss, with one AFSCME representative going so far as to call the financial giant "the Lindsay Lohan of banks."
Although the loss had been disclosed prior to last year’s annual meeting, when 60% of shareholders rebuffed a similar proposal, activists have focused on subsequent investigations, including a critical Senate Subcommittee report released this March, in making a renewed push.
The problem for the activists’ case?
Notwithstanding the large trading loss, JPMorgan netted over $21 billion in 2012, a 12% increase over the prior year. Since the beginning of 2012, before the trading loss occurred, JPMorgan stock has appreciated a hefty 42%.
And since Dimon assumed the joint chairman and CEO role in December 2006 — before the financial crisis — the bank’s stock has increased 4% as competitors Bank of America and Citi have tumbled 75% and 91%, respectively.
That labor activists’ push at JPMorgan appears unrelated to shareholder return is hardly atypical. The empirical evidence I have evaluated suggests that labor funds’ focus in sponsoring shareholder proposals generally correlates to union-organizing goals, not share value.
Were the labor funds backing the JPMorgan effort to succeed, they would send a powerful message to big-company CEOs about their clout, which is why corporate leaders everywhere will be watching next Tuesday’s meeting results.
• Copland is director of the Center for Legal Policy, which sponsors ProxyMonitor.org, a database of shareholder proposals filed with Fortune 250 companies since 2006. He recently released his second 2013 finding examining this year’s proxy season.
Moreover, continually increasing boards’ role in monitoring directors — the rationale underlying much of the regulation flowing from the 2002 Sarbanes-Oxley and 2010 Dodd-Frank reforms — is not cost-free.
A recent study published in the Sloan Management Review assessed the S&P 1500 companies and found "the most favorable conditions for innovation occurred when the board did not monitor the CEO intensely but focused on strategic advising, thereby encouraging the CEO to pursue valuable but high-risk innovation projects."
Perhaps unsurprisingly, then, shareholders have generally been hesitant to support proposals calling for separating the two roles. Since 2006, 210 such proposals have been introduced at Fortune 250 companies, but only seven won majority support (and never more than 55%).
In general, shareholders have voted for these proposals only when management has been viewed as underperforming. Thus, the labor activists backing the proposal at JPMorgan have focused on the $6 billion London trading loss, with one AFSCME representative going so far as to call the financial giant "the Lindsay Lohan of banks."
Although the loss had been disclosed prior to last year’s annual meeting, when 60% of shareholders rebuffed a similar proposal, activists have focused on subsequent investigations, including a critical Senate Subcommittee report released this March, in making a renewed push.
This piece originally appeared in Investor's Business Daily
This piece originally appeared in Investor's Business Daily