JPMorganChase Board of Directors this week voted to double CEO Jamie Dimon’s pay to something north of $20million. That he received such a big raise after the bank was forced to pay out more than $20B in fines for illegal activity has raised a number of eyebrows among analysts and shareholders. That he is receiving this raise after the bank laid off some 7,5000 employees in 2013, and recently announced it would not give employees raises due to the large fines, shows a distinct callousness toward employees, while raising questions about company leadership.
The Wall Street Journal reported that there was a lot of Board discourse about CEO Dimon’s pay package. But in the byzantine world of large company governance, apparently the Board felt compelled to pay Mr. Dimon tremendously well in order to send a message to Washington that the Board thought the regulators were wrong in pursuing malfeasance at JPMC. A show of support for the CEO who claimed this week he felt the bank had been treated unfairly.
Did that last paragraph leave you a bit confused? Because the logic, to be honest, is far from straightforward. The Board of a troubled bank with long-term leadership issues creating billions in trading losses and billions in fines for illegal behavior decided to withhold employee pay raises but double the CEO compensation in order to snub the nose of the regulators who have been pointing out years of unethical, if not illegal, behavior? The same regulators who might well see this very action as a good reason to heighten their investigations?
I’m not trying to oversimply the complexities of corporate governance, but this is some pretty tortured logic. When so many things have gone wrong, and it can be traced to leadership, rewarding that leader handsomely has the clear appearance of supporting his behavior, while punishing employees for the results of that leader’s actions.
Mr. Dimon is a media darling, and has been most of his career. He has also been outspoken on many issues during his career, drawing the attention of friends and foes. He is unabashed in his opinions, and even when he’s dead wrong – as when he referred to massive London trading losses as “a tempest in a teapot” he always speaks with total confidence. Mr. Dimon shows complete faith in his ability to be smarter than everyone else, and complete faith in his decisions, and he has no problem making sure everyone is fully aware of his absolute trust in himself.
But people are able to see trends. Although his defenders would like to say that the fines were related to issues which predated Mr. Dimon’s leadership, there are clear markers that differ. For example, it was the desperate search for higher profits under Mr. Dimon which led to the creation of the London trading desk, and giving it lattitude for big bets, that created some $7B in losses. Mr. Dimon’s final reaction was akin to “we make mistakes. Sorry. Time to move on.”
Oh yeah, and he fired the employees while claiming no personal responsibility.
And in January we learned that the bank was paying a $2.6B fine for aiding and abetting the ponzi scheme operated by Mr. Bernie Madoff. This behavior was something which had gone on for decades, without any oversight or reporting at the bank. This had continued while Mr. Dimon was CEO.
Why did these things happen? Because there was a huge desire to make more money.
Mr. Dimon is known for being as blunt with executives and employees as he is with the media. His “take no prisoners” style has been seen as crippling by many. Mr. Dimon focuses on results, and he is known for being brutal when he doesn’t receive the results he wants. For executives and employees that created a culture where delivering results to Mr. Dimon was paramount. And if that required taking big risks, or looking the other way about troubling behavior, well, people did what they had to do to make things happen at JPMC. If you had to bend the rules, or look the other way, to get results that was better than having to deal with the wrath of Mr. Dimon.
“The person at the top” sets the tone by which the organization behaves. And the more we learn about JPMC the more we see a company where the CEO loves to flash his POTUS cufflinks at the Congress and press, claim he’s taking the high road, and blame employees or predecessors when things go wrong. And that’s not a healthy environment.
Across the river from Wall Street Chris Christie, Governor of New Jersey, has become embroiled in controversy. His staff created an enormous traffic debacle in Fort Lee as retaliation against a mayor who did not support the Governor’s re-election bid. Mr. Christie fired the staffer, and claimed he knew nothing about it. But the majority of people in New Jersey aren’t buying the Governer’s ignorance.
Instead most Americans see a negative pattern in the governor’s behavior. His “take no prisoners” attitude has created accomplishments, but simultaneously he’s shown he thinks its OK to take off the gloves and fight bare knuckle – and not stop before taking some pretty sketchy shots at people in his quest to come out on top. Now regulators are digging even deeper to see if his bullying behavior set the stage for problems, even if he didn’t do the dastardly deed himself. And, as for governance, it will be up to voters to decide if Mr. Christie’s leadership is what they want, or not.
But at JPMC the governance is up to the Board. And this Board is, unfortunately, controlled by Mr. Dimon. He is not just CEO, but also Chairman of the Board. He holds the “bully gavel” when it comes to Board matters. He is able to set the agenda, and control the data the Board receives. He is able to call the Board members, and strong arm them to see things his way. Although it is clear the bank would benefit from a seperation of the roles of CEO and Chairman, Mr. Dimon has stopped this from happening. And the big winner has been – Mr. Dimon.
The signal this sends for JPMC employees, customers and investors is not good. While the stock is up some 22% the last year, governance and the CEO should have a long-term vision and not be influenced by short-term price changes. In the case of JPMC the culture appears to be one where seeking results is primary. Even if it leads to taking inordinate risks (which can create huge losses,) or taking and supporting questionable clients (Bernie Madoff,) or operating on the edge of financial industry legality. And if things go wrong – look for a scapegoat. Primarily someone below you who you can blame, while you claim you either didn’t know about it or didn’t support their behavior.
At JPMC the important question now is less about CEO pay and more about governance. The Board clearly has lost its ability to control a CEO + Chairman able to push his will, even when the logic of some actions appears hard to follow. The Board should be addressing who should be the Chairman, what should be the strategy, is the bank doing the right things, are the right compliance tools in place, and then – after all of that – is compensation being set correctly. That Mr. Dimon received such an undeserved raise simply points to much bigger problems in governance – and raises questions about the future of JPMC.