Tuesday, May 14, 2013

It's Not All About Prince Jamie Dimon.

Americans reflexively poke fun at royalty, especially their finery, rituals and pretensions. They raise our democratic hackles, and folks like Britain's Prince Charles are easy targets on both sides of the Atlantic. Divine right and hereditary succession are anathema.

But, Americans too have our own royalty and their supporting elites.  Our royalty includes corporate CEOs, hedge fund managers, private equity moguls, political dynasties like the Clintons, and media icons like Barbara Walters, whose "retirement" is front page news in the New York Times.

So, the issue of separating the Chairman of the Board position from that of CEO at JP Morgan Chase has become a referendum on the Princely rule of CEO Jamie Dimon. Riding the wave up to the mortgage bubble of 2006-8, getting princely bailouts from the general taxpaying rabble, and now riding the next wave of rising stock prices due to unprecedented monetary easing, Mr. Dimon is wealthier than ever and politicians hang on his every word.

Except for one thing.  With a dismissive wave of his royal hand and using a British metaphor of "a tempest in a teapot,"  Mr. Dimon irritatingly put up with questions from the stock-owning rabble about there being too much risk in JPM's proprietary trading operations.  All of his own, hand selected, massively compensated traders, executive vice presidents and risk managers told him, "It's okay, we're good."

Well, it wasn't. We've looked at the London Whale report in great detail and said before that it was a colossal failure at the top, where the Prince makes his royal abode. Splitting the positions of board chair and CEO is not a guarantee of better risk management or lower volatility of the share price.  However, nobody can make a rational argument for why combining the roles is better for shareholders and for corporate governance.

The only argument for combining the positions: the Prince might abdicate and go off to do something else. Seriously, what would that be? The "picking up your jacks and going home" card has already been played, which is amazing for its chutzpah and pettiness.

Mr. Dimon's friends in Greenwich, perhaps akin to Henry Vth's "band of brothers," have announced to the world that "they got his back." So, a real issue of governance has descended, in the finest American tradition, into adolescent posturing for the media.

Jamie Dimon should be able to do a better job of running JP Morgan Chase, of selecting a better inner cabinet, and of holding them accountable and monitoring their results, if he were freed from the drudgery of running and managing a board and its committees.  Running the business is where he has a comparative advantage and a track record.  Put all his time there: it is the best thing for shareholders.

Meanwhile the board probably should change over time and change its committee charters.  Risk management, such as it is which isn't great, should report in some fashion to a board committee.  This committee should be free to go where it will, looking under the covers for Warren Buffet's "ticking time bombs."  Opinions vary on how this kind of change can be structured, but it's not rocket science.

The goal is to get better first, lowering risk incrementally and increasing oversight and transparency for the entire board.  Splitting the roles is just a first step, but hopefully the board is strong enough to stand up to the Prince and his court.

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