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February 22, 2014
JPMorgan Agrees to Report on Governance and Risk Management
    by Robert Kropp

After engagement with the bank, members of the Interfaith Center on Corporate Responsibility withdraw resolutions addressing risk mitigation efforts and separating the positions of Board Chair and CEO.

The press release issued last Thursday by the Interfaith Center on Corporate Responsibility (ICCR) appears on the face of it to represent another triumph of the organization's emphasis on corporate dialogue over more controversial methods of shareowner action.

ICCR announced that its members have withdrawn two resolutions filed with the scandal-plagued JPMorgan Chase, in the aftermath of engagement that the organization considers to have been successful. One resolution, requesting that JPMorgan report to shareowners on business standards, was withdrawn after an “announcement by JPMorgan Chase that a detailed report of its risk mitigation efforts would be provided to its shareholders,” the press release states.

The text of the withdrawn statement details a number of scandals in which the institution has been embroiled in recent years, and states, “The bank spent $17.7 billion dollars on litigation-related expenses from 2008-2012 and set aside $23 billion as a reserve for future legal expenses.”

“Regulators lack faith that we are capable of managing business risks,” the resolution observes. “Our business is negatively affected with clients, consumers and the public.”

In a recent ranking of major US banks undertaken by ICCR and Sustainalytics, JPMorgan received the worst score for risk management. The institution's low score, the report states, was largely “due to its outstanding controversy relating to the London Whale trading loss, as well as multiple business ethic controversies, notably alleged Libor manipulation and money laundering compliance deficiencies.”

(The report, by the way, also contains a valuable synopsis of ICCR's historic engagement with the financial industry, the prescience of which has been largely ignored in the many books analyzing the causes of the 2008 financial crisis.)

“The hangover from the financial crisis continues six years later,” Rev. Seamus Finn stated. “Major institutions like JPMorgan Chase must continue to work hard to rebuild the trust and confidence of the public both in their own business through the products and services that they offer and in the broader financial system through the implementation of governance and risk management structures that will ensure greater market stability. A key benchmark for the achievement of this will be greater access to capital across all sectors of society, more transparency and the increased oversight and accountability of key management.”

Most corporate governance advocates agree that one of the most important methods of ensuring proper board oversight of key management is separating the positions of Board Chair and CEO. At JPMorgan, Jamie Dimon has held both positions since 2006. Despite the financial crisis and the many scandals still adhering to the bank's performance, JPMorgan's board—with Dimon at the helm, of course—has resisted efforts by shareowners and corporate governance advocates to separate the positions. The Needmor Fund filed a shareowner resolution this year requesting such a separation; ICCR's press release reports that that resolution was withdrawn as well, “after the company and investors agreed to explore together a multi-stakeholder colloquy to discuss the factors a board might consider when making the decision on whether to separate the positions of Chair and CEO.”

“The numerous scandals faced by JPMorgan Chase in the last year deeply disturbed investors in the bank who called on the management and the board to swiftly address the underlying issues and establish new checks and balances,” said Timothy Smith of Walden Asset Management. “We believe the combination of these two resolutions sent a clear signal about the seriousness of the issues facing the bank.”

It remains to be seen if ICCR's engagement with JPMorgan Chase this proxy season can be described as successful. After all, the actions of the bank contributed to a financial crisis from which the global economy has yet to recover, and skepticism over the bank's commitment to improved corporate governance and ethical behaviors is understandable. The impacts of JPMorgan's business activities have been felt throughout society, and too many stakeholders to count will be watching how ICCR's engagement develops.


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