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Analysis: do withdrawn resolutions show greater investor engagement with US banks?

How shareholder motions prompt dialogue

US investors that are part of the 300-member $100bn (€72.9bn) Interfaith Center on Corporate Responsibility (ICCR) have withdrawn a series of governance-related resolutions recently at US banks – such as at JP Morgan Chase yesterday – in a sign that they are starting to succeed in engaging with Wall Street.

Apart from the very public announcement about JP Morgan, members of the ICCR have also quietly withdrawn resolutions at Wells Fargo and Bank of America in the last month or so.

They have done so on the grounds of greater dialogue with the banks about how they are dealing with the fall-out from what Seamus Finn of the Missionary Oblates of Mary Immaculate calls “colossal failures in risk management” exposed in the near meltdown of 2008.

The ICCR pulled its proposal at JP Morgan calling for the separation of chairman and CEO positions after an agreement to explore a “multi-stakeholder colloquy” on the “factors a board might consider when making the decision on whether to separate the positions of chair and CEO”.

This could be code for: ‘Yes, we hear you. Jamie Dimon’s successor won’t hold both roles.’ If so, that would represent a major advance for corporate governance advocates if there really is such an understanding between the investors and the bank’s board of directors.

Bear in mind that a sizeable 32.2% of shareholder votes backed a shareholder proposal last year to separate the Chair/CEO roles. That motion, albeit non-binding, was brought by the AFSCME Employees Pension Plan, Hermes Fund Managers, the New York City Pension Funds and the Connecticut Retirement Plans and Trust Funds. One major investor, Dutch pension giant PGGM, explaining its support for the motion, said: “Conflicts of interest may arise when one person holds both the chairman and CEO positions.”This weight of shareholder support appears to have bolstered the ICCR’s case with the JP Morgan hierarchy.

Lead independent director Lee Raymond, the former CEO and Chairman at ExxonMobil, said: “Engagement with shareholders is important and facilitates a better understanding of governance practices and communications that promote the best interests of the company and its shareholders.”

The investors had also sought a report on business standards given the litany of scandals at the bank, which the bank has agreed to provide this autumn. The very fact that the investors and the bank coordinated on a media release suggests that some sort of common ground has been identified.

Meanwhile, ICCR members have also been using a similar approach – though out of the spotlight – with other US banks.

Sister Nora Nash of the Sisters of St. Francis, engager of Goldman Sachs and Chevron no less, was lead filer of a similar ‘business standards’ resolution at Wells Fargo, concerned about reputational credibility, staff ethics, board accountability and oversight, whistleblower protection and compensation for executives accountable for scandals.

Then, at the end of last month she wrote to the company to thank it for “taking the time to dialogue with us” on the issue. “We support your strong ethical standards and code of conduct,” she wrote, confirming the withdrawal of the motion. It’s unclear, though, what commitments Wells Fargo has made.

And ICCR members have also withdrawn a similarly worded motion at Bank of America. The Missionary Oblates’ Rev. Finn wrote to the bank this month saying: “We look forward to the opportunity to discuss the issues that we have raised in the resolution with representatives of Bank of America in the coming weeks.”

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