NEW YORK May 4 JPMorgan Chase & Co
shareholders should vote against the re-election of three board
members because they failed to properly oversee risk-taking that
led to $6.2 billion of losses on the so-called "London Whale"
trades, an influential proxy advisory firm said.
ISS Proxy Advisory Services said in a report released late
Friday that directors David Cote, James Crown and Ellen Flutter
should not be re-elected at the company's annual meeting this
month because of "material failures of stewardship and risk
The report by ISS ratchets up pressure on directors to
reduce Dimon's power at JPMorgan, the biggest bank based in the
United States, as some stockholders push for more supervision of
the outspoken executive.
A statement from JPMorgan spokeswoman Kristin Lemkau on
Saturday said: "The company strongly endorses the re-election of
its current directors and disagrees with ISS's position."
ISS also renewed its recommendation from a year ago that CEO
and Chairman of the Board Jamie Dimon give up one of those two
titles. ISS said investigations of the derivatives loss, which
surfaced right before last year's shareholder meeting, showed
that JPMorgan executives need more independent oversight and
that the company is too big and too complex for one person to be
able to do both jobs.
Shareholders will meet on May 21 in Tampa, Florida. They
will vote on the re-election of the company's 11 directors and
on a non-binding proposal from four institutional shareholders
calling on the board to have a chairman who is independent from
management. A similar advisory proposal failed to pass last
year, receiving only 40 percent of the vote. That vote was five
percentage points more than similar proposals at other companies
The independent chair vote is developing into a major test
for Dimon, 57. It comes as criticism, and
sanctions from regulators, over poor risk management have piled
up since the "London Whale" losses surfaced at the bank, which
has $2.39 trillion in assets, the most of any U.S. bank.
The trading debacle has picked up the same "London Whale"
nickname that hedge funds gave to a JPMorgan trader for the
outsized derivatives bets he placed for the company.
The ISS recommendations on the re-election of directors shows
the shareholder debate over governance of the company is
broadening beyond Dimon.
The three directors who ISS singled out for replacement were
members of the board's risk policy committee in December 2010
when the committee was shown a presentation by management that
highlighted large profits from trading strategies in the firm's
Chief Investment Office, where the derivative losses later
The presentation said the CIO strategies had contributed
$2.8 billion of "economic value" since inception, with an
average annualized return of 100 percent, according to a report
released earlier this year by the board on its review of the
ISS said the large profits showed that the CIO had changed
from a unit that hedged risks to "what was essentially a
proprietary trading desk" and should have prompted the committee
to act against the practice.
The company statement added: "While the company has
acknowledged a number of mistakes relating to its losses in CIO,
an independent review committee of the board determined that
those mistakes were not attributable to the risk committee."
In its proxy statement for the coming meeting, the board
said that the actions taken by the company after the "London
Whale" debacle show it to be strong and independent.
After the loss, the board added a member to the risk policy
committee - new director Timothy Flynn, a retired chairman of
auditor KPMG International.
ISS, which researches proxy issues and makes voting
recommendations to institutional investors, praised the company
for putting Flynn on the panel and recommended that shareholders
re-elect him as well as seven other directors.
Last year, ISS recommended that all director candidates
nominated by the board be elected.
The advisory firm said the JPMorgan board needs
"refreshment" and the panel should search "for seasoned
directors with financial and risk expertise" to replace Cote,
Crown and Futter.
Cote is chief executive and board chairman of technology and
aerospace company Honeywell International Inc ; Crown is
president of investment firm Henry Crown and Co, and Futter is
president of the American Museum of Natural History.
The company's statement on Saturday also said: "The members
of the board's risk committee have a diversity and breadth of
experiences that have served the company well."
ISS said it had discussed the board's independence and the
qualifications of the risk policy committee members with the
board's presiding director, Lee Raymond, on April 26 before
reaching its conclusions. Raymond is a former CEO and chairman
of the board of Exxon Mobil Corp.
ISS criticized the board for deferring to management and
said the panel "appears to have been largely reactive, making
changes only when it was clear that it could no longer maintain
the status quo."