The procession of the board directors at JPMorgan Chase is illustrated by accusations of the major bank rigging energy markets. This board encourages voters to keep the locomotive running along the same track, as a vote for reelection approaches for the board of directors. However, the Institutional Shareholder Services (ISS) along with Glass Lewis and Co., a major shareholder advisory firm both suggest a derailing. They suggest voting against the current risk management committee, as well as less power for President and CEO, Jamie Dimon. (Vardi, 2013)
Charles Peabody, president of an independent research firm which also provides analyses on banks, disagrees with disturbing Mr. Dimon’s dual roles. Mr. Dimon had previously mentioned that he wouldn’t have accepted the position of CEO, if he wasn’t also on the board of directors. Mr. Peabody suggests that removing the board of directors role could cause Mr. Dimon to cut ties early with the bank. Since the bank’s stock currently holds a premium value, according to Mr. Peabody, that value may be diminished. (Kopecki, 2013)
The bank has been able to hedge losses and continue to profit with Jamie Dimon in a dual role. How important is the role of risk management, when the hedge is the energy market. In determining the appealing pricing for the energy markets, they may have counted on the monsoons to replenish the renewable energy sources, while forgetting about the downside of blackouts. Market manipulation of energy plants was the cause of the electricity shortage during the Enron era. Rolling blackouts led to the discovery the company was hiding debt in the billions from their investors. Even with the Enron lesson over a decade ago, JPMorgan Chase may have seen it has a way to profit after the London Whale loss of 2012.
In the scenario where Jamie Dimon is CEO, but another is Chairman, CEO Dimon has someone to answer to. The man with the giant ego resigns with the loss of power. The current risk management team is fired for not being properly educated on what is considered risk. The bank’s assets are saved. Mr. Peabody is still fixed on the idea that the stock is no longer premium. He’ll say, “This isn’t Enron, it’s the biggest bank in America and you’re destroying the stock.” Never mind you, before Enron’s stock was worthless it held a value of more than $90 per share.
With the scenario in which this train doesn’t switch tracks, Jamie Dimon keeps the power of both positions. He continues to brush off those who suggest trouble on the horizon with his investment risks. He keeps his current risk management team, who has the ability to overlook risk and take a chance. They have a few options for investments, hedge funds or proprietary trading, they’re both risky but hold the potential for big profits if bet on correctly. “Oh, no, another loss, how did the risk team miss that one?” The bank fails. After numerous senate hearings, hindsight indicates the importance of the Volkner Rule, “which would bar most proprietary trading by deposit-taking institutions.” (Erik Schatzker, 2013) Several of the chief officers and board of directors do time for the white collar crime that led to the big bank’s bankruptcy.
A device set to detonate from the top of the rail car, is meant to signal danger for the crew members, not blow up in their faces. The investors were given a warning in 2012, with the London Whale loss. It seems the torpedo has fired off a second warning, with the recent news of rigging the energy markets. We will learn the shareholders decision for the board of directors, once all the votes are in on May 21, 2013. It is then up to the board of directors, if they would like to vote along the lines of the shareholders or keep going down the same track.
Quotes about Enron. (2013). Retrieved May 07, 2013, from goodreads: http://www.goodreads.com/quotes/tag/enron
Erik Schatzker, D. K. (2013, June 14). Jamie Dimon's Risky Business. Retrieved May 08, 2013, from Bloomberg:
Kopecki, D. (2013, May 04). JPMorgan Investors Urged to Split Chairman Role, Oust Directors. Retrieved May 07, 2013, from Bloomberg: http://www.bloomberg.com/news/2013-05-04/jpmorgan-should-name-chairman-to-watch-ceo-iss-tells-investors.html
Vardi, N. (2013, May 07). The Revolt Against Jamie Dimon. Retrieved May 07, 2013, from Forbes: