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Split decision

23 May 2013 By Jeffrey Goldfarb

It’s time to escalate the kerfuffle over corporate governance at U.S. financial institutions. Jamie Dimon fought aggressively to retain both the chief executive and chairman roles at JPMorgan, in large part because a shareholder vote to separate them could have been seen as a demotion. After all, if peers like Lloyd Blankfein at Goldman Sachs hold the two top jobs, others who are just CEOs might be left feeling like second-class citizens of sorts. Regulators should turn the division of labor into a virtue.

The Financial Stability Oversight Council, for one, could push a little harder. In its annual report this year, the organization tasked with monitoring systemic risks recommended that watchdogs continue to keep a close eye on corporate governance practices at U.S. financial hulks. But the Federal Reserve, the Securities and Exchange Commission and other council voting members can do more than watch. The regulators may be able to mandate a separation of the chairman and CEO roles. But even if they can’t, they have potent powers of persuasion.

A split would better synchronize governance at large U.S. lenders with their international counterparts. For some two decades, the London Stock Exchange has required listed companies to either split the jobs or explain why they don’t. The likes of HSBC and Barclays comply. So, too, do other financial institutions deemed systemically important, among them UBS, Credit Suisse, Deutsche Bank and BNP Paribas.

The United States is an outlier. According to executive search firm Spencer Stuart, of the 79 S&P 500-listed financial services companies, only about a quarter had an independent chairman last year. Roughly six out of 10 CEOs in the industry – including Dimon, Blankfein, Wells Fargo’s John Stumpf, Morgan Stanley’s James Gorman, State Street’s Joseph “Jay” Hooley and BlackRock’s Larry Fink – also held the chairman role.

The situation at JPMorgan underscores why a division at the top would be good governance. The sprawl endemic to the biggest financial institutions is enough to keep bosses sufficiently busy without the added responsibility of managing the board. The chairman duties may not have been specifically what distracted Dimon from the runaway risks being taken in his chief investment office, but something did. He also felt compelled to devote time pleading his case to keep both jobs in the face of a shareholder uprising.

Before the issue becomes a diversion again at JPMorgan or elsewhere, the Fed and others should step in. Bank bosses seem no more immune to peer pressure than school children. If watchdogs make a one-hat uniform the norm, it’ll remove any perceived stigma of not wearing two.


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