I can’t think of a better example of what a shakedown operation the proxy advisory business has become than the sanctimonious nonsense lately emerging from firms like ISS and Glass Lewis over whether JPMorgan Chase should separate the chairman’s position the CEO’s. I mean, really, fellows. This isn’t hard:
Fact: Jamie Dimon steered JPMorgan Chase through the most catastrophic financial crisis of our lifetimes-a crisis that ended the careers of more than a few of his peers, by the way, and caused the collapse of several Morgan competitors-as ably as any big-bank CEO and much more ably than most. Under Jamie, JPMorgan Chase consciously avoided the excesses that contributed to the bubble, and emerged from the resulting turmoil stronger than ever. For this he deserves to be demoted?
Fact: The “London Whale” losses that have Jamie’s critics’ howling were immaterial to JPMorgan in the grand scheme of things. Sorry, but it’s true: even with the loss, Morgan earned $28 billion pretax last year, a record. The company ended the year with $204 billion of shareholders equity. The only reason the bank had to disclose the loss in the first place is that Jamie (to his everlasting regret, I’m sure) had earlier described the controversy as a “tempest in a teapot.” It turned out to be a bit more than that, and the bank had no choice but to say so. Still, immaterial.
Fact: There’s zero evidence that splitting the chairman’s role from the CEO’s does anything to improve corporate governance or the creation of shareholder value. Jeffrey Sonnenfeld ably pointed this out on Wednesday in an op-ed in the New York Times. I won’t summarize his entire piece here (it’s definitely worth reading, though) and will merely mention that Sonnenfeld points out that Enron and WorldCom both had separate chairmen and CEOs, just the way ISS and Glass Lewis recommend. How did that work out? Further, fully half of Fortune’s list of “most admired companies” don’t bother splitting the titles, either.
So there’s no evidence that there’s a governance problem at Morgan in the first place and, even if there were, splitting chairman from the CEO wouldn’t do anything to fix it. The only practical effect of shareholders taking ISS’s and Glass Lewis’s advice, then, would be to increase the marginal propensity of Jamie to take a call from a recruiter. How that would benefit shareholders is beyond me.
In the meantime, as I say, it’s hard not to come to the conclusion that this whole “proxy advisory” business is anything but a scam, and the advisors themselves anything but parasites. By the nature of their jobs, investment managers are supposed to be independent thinkers. I can’t imagine an area of the business where independent thinking is more vital than how a manager carries out his role as a fiduciary. It is the sort of thing that simply shouldn’t be outsourced by any manager who takes his job seriously. But too many managers unfortunately do outsource it, to these self-appointed, highly paid governance “experts” with their idiotic “best-practices” checklists that have little to do with the real world, and their dumb recommendations that can often weaken a company rather than strengthen it. It’s a bunch of kabuki nonsense that costs companies, costs shareholders, and doesn’t do anybody any good but the holier-than-thou advisors themselves. There are better ways to spend money. Investors should read the proxies themselves-that’s what I do-and then vote like owners, since that’s exactly what they are.
What do you think? Let me know!