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It’s Jamie Dimon who is being irresponsible with his comments on proxy advisors

The JP Morgan chief’s outburst signals that corporate governance is starting to get serious in the US.

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In today’s Responsible Investor alert, we reveal a glaring contradiction within US banking giant JPMorgan Chase. While its Chairman and Chief Executive Jamie Dimon has called investors that turn to proxy advisors for voting guidance ‘lazy’, ‘irresponsible’ and ‘probably bad investors’, JP Morgan Asset Management (JPMAM) – the group’s fund management arm – uses one of those advisors, namely Institutional Shareholder Services (ISS). And digging into JPMAM’s voting record, RI has discovered that following recent recommendations from ISS to vote against excessive executive pay at five listed firms, JPMAM did exactly that.
Does that make them lazy, irresponsible and probably bad investors, according to Dimon logic?
Of course, it doesn’t.
JPMAM might ignore proxy advisors if the money it was investing just came from the bank. Given Dimon’s scorn for the likes of ISS and Glass Lewis, who would risk crossing the group CEO?
But its business model is based on attracting assets from institutional clients, and they want their money managed responsibly to best corporate governance principles. Rightly so. There are vast swathes of financial evidence – that Dimon has perhaps not read – that argue the case.
Let’s take the obvious. If companies are squandering shareholder money by overpaying executives, clients are right to insist that JPMAM take a stand on their behalf and vote their shares. Because of this, and because of the sheer number of companies JPMAM invests in, it needs proxy advice. JPMAM is under no obligation to follow that advice. It can if it deems it financially important enough to, which it has done. JPMAM also is a signatory to the United Nations-supported Principles forResponsible Investment (PRI) and the UK’s Stewardship Code, so its concerns about good corporate governance would be expected; otherwise why sign?
How, then, to explain Jamie Dimon’s scathing remarks about proxy advisors and investors who use them?
One thought could be that it’s Dimon that’s being lazy and irresponsible? A tempting argument, but unlikely.
Perhaps the real reason is that corporate governance in the US is getting serious; and for Dimon it’s personal. At the bank’s annual general meeting (AGM) in May, a third of its shareholders voted against Dimon’s dual role as CEO and chairman, as well as his pay package. Both ISS and Glass Lewis had recommended investors vote against the bank’s executive pay deals, citing a lack of any preset performance metrics or targets to determine cash and equity incentives.
RI has written regularly about the ongoing issues between investors and JP Morgan on the Chair/CEO split, which has upset the powerful $3trn Council of Institutional Investors: Link
More broadly, the campaign by US investors on proxy access
– to give institutional investors greater say on the director nomination process – lead by the New York City Pension Funds and backed by the likes of CalPERS and Norges Bank (on behalf of the Norwegian Government Pension Fund), is making headway.
RI has written about how investors are winning the war on proxy access.
That’s happened despite what we have dubbed the US smack down on proxy advisors.
Speaking at the ICGN conference in London last week, Michael Garland, Executive Director for Corporate Governance at the New York City Comptroller’s Office, which oversees the $120bn in assets for New York City’s five public sector pension funds, gave an update on their proxy access campaign after 35 annual general meetings out of a targeted 53. Roughly two thirds of those votes,
he said, were gaining more than 50% approval from shareholders. Other large fund managers also disagree with Dimon’s sentiment. Donna Anderson, Vice President and Head of Global Corporate Governance at T. Rowe Price, said the “war on proxy advisors is one of the bad things that I am seeing. But I think many companies believe what Jamie Dimon is saying.” Garland added: “The issue is a complete red herring and people should stop talking about it. It’s ridiculous. The investors that are being advised are not the ones complaining about the service.”
As RI has reported, the European Securities Market Association (ESMA) has looked at the issue in depth and given the proxy/investor relationship a clean bill of health.
Indeed, in a 2012 response to that review JPMAM’s Head of Corporate Governance, Robert Hardy, wrote “One reason for the high correlation between proxy advice and voting outcomes is that the recommendationsmade by the voting agencies are based in large part on internationally-accepted principles of corporate governance best practice.”
An ESMA review is currently evaluating the self-regulation of proxy advisors.
RI has regularly argued that proxy voting companies are a vital part of today’s institutional investment world. We’ve also carefully explained why we believe this was the case at JP Morgan Chase’s AGM.
At Deutsche Bank’s annual general meeting (AGM) last month, the recommendations from ISS, Glass Lewis and others led to almost 40% of the bank’s shareholders giving a vote of no-confidence to Co-CEOs Anshu Jain and Jürgen Fitschen. It was high time that investors expressed anger over the scandals that have greatly damaged Deutsche’s reputation, cost it billions of euros in legal fees, and flat-lined the long-term share price. The result of the vote? Jain and Fitschen resigned this week to provide the bank with a fresh start. That doesn’t sound lazy or irresponsible to us. Jamie Dimon should recant, before his views start to get bad for business.

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Link to RI news story: JPMorgan Chase funds arm votes with ISS recommendations against excessive exec pay, despite bank chief Dimon’s proxy trashing