We Guessed It!

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Jamie Dimon won re-election to the JPM Board “by a landslide” of just under 68% of the votes ensuring that he will continue to hold the both the CEO and Chairman posts. We certainly are not surprised, and predicted this on our blog Now That’s a Tempest in a Teapot. Three Directors who sit on JP Morgan’s Risk Management Committee of the Board didn’t lose outright garnering 53% to 59% of the vote, but it appears from hints made by Lead Director Lee Raymond that changes are afoot. According to a May 22, 2013 article by Maureen Farrell for CNN Money (Jamie Dimon May Face New Tougher Board), “The board’s presiding director, Lee Raymond, foreshadowed a potential board shake up when he told shareholders to “stay tuned” for announcements about the composition of this committee.”

Farrell goes on to say that “Board members are rarely voted out by shareholders. Only one of every 3,000 directors loses a bid for reelection each year”. Well these three JP Morgan directors, Honeywell CEO David Cote, private investor Henry Crown, and American Museum of Natural History president Ellen Futter, weren’t actually voted out, and Raymond’s comment could simply mean that these three will assume new tasks on the JPM board. But CtW Investment Group, which represents union pension funds, is still calling for blood, demanding that the three step down. We’ll see.

(As a “sidebar” to this, it is interesting to note that according to The Roper Center at the University of Connecticut in our “post-Reagan” elections, no winning US president has secured more than 53.1% of the popular vote.)

But if these three move off the risk committee onto something else, we hope that those who take their places will have more experience in risk management in the ever more complex realm of banking. As Raymond said (according to a May 21, 2013 article by Farrell for CNN Money, “The traders didn’t understand the complexity of the [London Whale] derivatives they were trading… so the risk committee shouldn’t have either”. And if they continue to serve on the Board we hope they do so in a capacity compatible with their experience.

As Michael Dennis Graham wrote in his recent book Board of Directors Governance & Rewards:
Building Adaptive, Flexible and Situational Boards That Are Aligned With Business Strategy (in print version or ebook version), “Having the right board members in the right roles throughout their tenure on the board is critical to the boards and ultimately the organization’s success.”

Graham also shares that “Talent management for boards is hypercritical to success, but poorly addressed. The irony here is that boards are manned by individuals known for recruiting high quality executives and rigorously managing organizations, but boards are too often unable to identify and select the best members for their own club – new board members who measure up to key organization and board capability requirements.”

So what capabilities do JP Morgan’s and all other public companies’ boards require? Here are some ideas. Boards need the capability to:

1) develop a board governance strategy consisting of appropriate organizational structures, processes, staffing, and culture.
2) appraise, disclose, and insure the mitigation of business and other important risks.
3) review, approve, and monitor long-term general, the mid-term value chain and annual specific business strategies and operating plans.
4) identify, evaluate, recruit, and replace members of the board, CEO and other key executive staff.
5) appropriately compensate the board, CEO, and key executives.
6) review company legal and regulatory compliance.
7) develop, monitor, evaluate, and execute a shareholder relations program.

As we can see from the London Whale issue, a board that needs but lacks certain capabilities can wreak havoc.

Time will tell if JP Morgan gets its board capability issues resolved.  In the meantime we recommend that Mr. Dimon, Mr. Raymond, and all the J P Morgan directors read the book “Board of Directors Governance & Rewards: Building Adaptive, Flexible, and Situational Boards That Are Aligned With Business Strategy” (in print version or ebook version, or contact Michael Graham by email (michael.graham@grahall.com) or phone (917.453.4341).

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