In JPMorgan battle, board must contend with small governance firm


All eyes are on the May 21 annual meeting of JPMorgan (NYSE:JPM) shareholders, especially the vote on whether to split the chairman and CEO positions, both of which are currently held by Jamie Dimon, who serves as president as well. The vote will hinge on big institutions, and none loom larger than BlackRock, which holds a whopping 6.5 percent of the bank's common stock.

In an interesting twist, DealBook reports that BlackRock's shares will not be voted by BlackRock. Instead, the shares will be voted by a small, somewhat obscure proxy advisory service based in London called Governance for Owners, which describes itself as "responsible activist investor."  

It's not as if BlackRock is abdicating responsibility.

"BlackRock outsourced its voting because of a provision in the Bank Holding Company Act. Because of its ties to the PNC Financial Services Group, BlackRock is required to outsource its votes to independent third parties when ownership exceeds a certain threshold. This provision is aimed at stopping any one company from having inordinate influence over the banking industry. BlackRock appears to be the only major JPMorgan shareholder to be affected this way."

Governance for Owners touts its core values on its web site. They include the following:

  • As responsible activist investors we must engage constructively
  • We add value to clients' portfolios through active ownership, both as an asset manager and as an agent
  • Our constructive and discreet activism is most effective, for the company and for the shareholders

So you get the sense that they are not that much different than ISS and Glass, Lewis, both of which already support the proposal to separate the top two positions. It wouldn't be surprising if BlackRock's shares are voted in favor of the split.

With that said, the board will surely be reaching out to the company, aiming to persuade it that combined positions make the most sense for JPMorgan. This effort might bear fruit, as Governance for Owners has shown a willingness to back off various actions if it believes a board is on the right course. Of course, the JPMorgan board has to offer something, perhaps in the form of a revamped risk committee or a stepped up role for the lead independent director. There is still time for bargaining.  -Jim