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December 30, 2014
JPMorgan Publishes Governance Report in Return for Resolution Withdrawal
    by Robert Kropp

Members of the Interfaith Center on Corporate Responsibility withdraw a key corporate governance resolution after the financial institution agrees to publish a report detailing its efforts at governance reform. First of a two-part series.


There has been much lively debate among sustainable investors ever since the fossil fuel divestment movement caught fire. The quandary: do we divest our holdings for both ethical reasons and long-term financial considerations based on the concept of stranded assets, or do we keep our seats at the table in hopes of convincing the richest industry in the history of the world to do its part to help usher in a low-carbon economy?

The debate among shareowners of companies in less overtly destructive industry sectors takes a somewhat different tack. Do use we use the power of the proxy by filing shareowner resolutions addressing environmental, social, and corporate governance (ESG) issues, or do we engage with corporate management in an effort to convince them to amend their practices?

Most sustainable institutional investors practice a blend of the two approaches, with the capacity for filing well-publicized shareowner resolutions acting as encouragement for bringing corporate management to the table to talk. One of the most successful organizations in both regards over the past several decades has been the Interfaith Center on Corporate Responsibility (ICCR). In recent years, ICCR members have come to value engagement in the form of dialogue whenever possible; in 2011, Executive Director Laura Berry told SocialFunds.com, “The only real win is withdrawn resolutions, when companies look to us as a focus group for risk management.”

In that spirit, ICCR members announced recently that they have withdrawn a resolution at JPMorgan Chase calling for the separation of the positions of Board Chair and CEO. In return for the withdrawal of the resolution, which has been submitted by ICCR members for several years, JPMorgan agreed to issue a report, entitled How We Do Business, which purports to explain how internal controls have been strengthened to ensure that the institution no longer longer indulges in the ethical lapses that have resulted in increased regulatory and legal scrutiny.

In my first reading of the report I failed to discern more than peremptory mea culpas on the part of one of a handful of banks responsible for the financial crisis and a resulting global economic meltdown, but I will reserve more thoughtful criticisms for my next article after a careful rereading of it. But the bank's governance problems certainly continued well past 2008; referring to the billions lost in the infamous London Whale episode, described by the Senate's Permanent Subcommittee on Investigations as "a massive bet on a complex set of synthetic credit derivatives," AFSCME President Gerald McEntee said in 2013 that Chairman and CEO Jamie Dimon “denied that the 'London Whale' was making risky bets, and now that this has turned out to be a fish story, shareholders need to step in.”

Also, as a signatory to the Equator Principles, JPMorgan Chase has committed “to implementing the Equator Principles in our internal environmental and social policies, procedures and standards for financing Projects. We will not provide Project Finance or Project-Related Corporate Loans to Projects where the client will not, or is unable to, comply with the Equator Principles."

Regardless of the environmental aspirations of the Principles, JPMorgan remains among the top financiers of coal-fired power plant construction.

One corporate governance measure taken by JPMorgan has been the strengthening of the position of lead independent director, currently held by Lee Raymond, the former long-time CEO of ExxonMobil. Yet, under Raymond's watch, the bank's board just this year gifted Dimon with a 74% pay raise, to $20 million.

“The report appropriately acknowledges the lapses in ethical conduct that resulted in significant damage to the company’s reputation and details steps taken to reduce the possibility of such lapses in the future,” Rev. Seamus Finn of ICCR noted. “That their actions have broader, societal repercussions beyond the scope of the company seems also to have been recognized.”

An ICCR resolution still in play seems of especial importance, given the recent gutting by Congress of Dodd-Frank safeguards governing the same high-risk behaviors of banks that led to the financial crisis. That resolution, filed by the Sisters of St. Francis of Philadelphia, requests greater disclosure on the company’s lobbying activities.

“We are particularly concerned with corporate spending that seeks to undermine regulation requiring stricter oversight and which may occur directly or indirectly through trade association memberships,” Sr. Nora Nash said. “The news last week on Dodd Frank rollbacks regarding derivatives trading gives JPMC’s response to this request even greater relevancy.”

Next: An analysis of JPMorgan Chase's report, How We Do Business.

 

 
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