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only real win is withdrawn resolutions, when companies look to us as a focus group for risk
In that spirit, ICCR members announced recently that they have withdrawn a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
“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
Next: An analysis of JPMorgan Chase's report, How We Do Business.