J. P. Morgan’s board claims to have no authority over its investment arm

The arguments behind the latest attempt to exclude a shareholder proposal by banking giant bank JPMorgan Chase might come as something of a surprise to its board of directors, relying as it does on the claim that they have no authority over the investment arm of the bank. A surprise, except that, presumably, the board has sanctioned the argument.

The shareholder proposal, submitted by Boston Trust Walden along with a group of religious investors, is among a group of similar proposals filed at other major investors. It calls on the bank to better align its proxy voting practices with its “client’s financial interests and its stated ESG commitments”. 

JP Morgan is among a number of prominent investors which are members of the Principles for Responsible Investment (PRI) – these include Vanguard, BlackRock, T. Rowe Price – but does not appear to consider climate risk in determining its votes on environmental shareholder resolutions filed at the companies they own.

JP Morgan is headed by CEO Jamie Dimon, one of the prime movers in the Business Roundtable’s work on “stakeholder capitalism”.

According to Boston Trust Walden: “In 2019, T. Rowe Price supported just 15% of climate-related proposals. Vanguard and BlackRock supported just 12%. JP Morgan brought up the rear with support for just 4%.” Boston Trust Walden is leading the resolutions at JP Morgan and Vanguard, while Mercy Investment Services is the lead filer at BlackRock and Zevin Asset Management is lead at T. Rowe Price.

Already implemented, ordinary business and no authority

Specifically, the resolution asks the board of directors for a report on JP Morgan’s proxy voting record in 2019, to be presented to shareholders, that evaluates the “Company’s proxy voting policies and guiding criteria related to climate change, including any recommended future changes”.

The bank’s lawyers make a number of arguments for excluding the proposal in a so-called ‘no-action’ letter to the SEC, appealing to the Commission to take no action against it if it excludes the proposal, including that such a review has already been “substantially implemented” and that it relates to the company’s “ordinary business”. But the most extraordinary is the argument that both the company and the board lack “the power or authority to implement the proposal”.

The bank’s claim is that JP Morgan Investment Management Inc. (JPIM) – and not JP Morgan – has voting authority for “certain of its investment advisory accounts” and that JPIM’s Global Proxy Voting Procedures and Guidelines are “established, reviewed, and approved by the JPMAM U.S. Proxy Voting Committee”, and not the board. 

Furthermore, JPIM’s fiduciary duty is to vote proxies in the best interests of its clients and since this fiduciary duty is specific to JPMIM, the board has no authority to change or review this either. 

This is the argument put forward by the firm’s lawyers Morrison Foerster. 

As a final cap to its arguments, JPM relies on the SEC’s October 2019 Staff Legal Bulletin which requires company boards to consider whether a resolution is “significant” to a company. 

Despite having no authority over the resolution’s intent, or perhaps because of it, the board has also “Considered the Proposal’s Request and the Authority of the Board and Determined that the Proposal is not Significant to the Company”.