BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Stripping Dimon Of Chairman Role Is Overkill, A Bad Move For JPM

This article is more than 10 years old.

Jamie Dimon is being forced to check his ego as calls to strip him of the chairman role grow louder.

JPMorgan Chase Chairman and CEO, Jamie Dimon

Dimon, who has served as both CEO and Chairman of JPMorgan Chase since 2006, is feeling the heat as shareholders ask that he give up some of his power at the nation's largest bank.

Last year a shareholder proposal to split the CEO and chairman roles failed when just 40% voted in favor of doing so. But the proposal is on the table once again this year and it seems more shareholders are considering the split.

"Let's call it like it is. Jamie Dimon is walking around with a big black eye with regards to the London Whale," says Anthony Sabino a professor at St. John’s University‘s Peter J. Tobin College of Business.

That black eye is the result of the $6 billion trading loss the bank felt after once of its trader's (dubbed the London Whale) bets blew up. Prior to the blow up, Dimon was asked about the trader's risky position and called he responded by calling the attention on the portfolio a "tempest in a tea pot."

Dimon's pay took a big hit as a result falling to $11.5 million from $23 million the prior year. But some shareholders want a more long-term change at the top, and more oversight over the bank's management. Splitting the chair and CEO jobs allows for greater transparency at the top, proponents of the move argue. Keeping the roles together offers little checks and balances since the CEO would be responsible for overseeing his or her own decisions and performance.

Here's how the chairman and CEO roles differ, according to Institutional Shareholder Services:

The chairman:

  • Leads the board.
  • Selects and replaces the CEO.
  • Sets executive pay.
  • Provides advice and counsel to senior management.
  • Monitors and evaluates managerial and company performance.
  • Represents stockholder interests.

The CEO:

  • Manages the day-to-day operations of the company.
  • Acts as the company spokesperson.
  • Formulates strategy for the company, subject to board approval.

"Overall, it's deemed the best practice to split the roles," Sabino says. But, he adds, there are exceptions to the rule. Take the case of Disney where Michael Eisner stepped in as CEO and chairman rescuing the company in 1984."Years later the board stripped him of the chairman's role after a large number of shareholders voted in favor of doing so. Still, when Disney later brought in a new CEO, Bob Iger, the chairman and CEO roles were once again combined.

Splitting the chairman and CEO roles isn't always a good idea. Timing is key. In fact, many companies usually decide to split the CEO and chairman when a new CEO is named. "It's less popular to take the chairman role away from someone once they're already holding it" says Jason D. Schloetzer, assistant professor of accounting at the McDonough School of Business, Georgetown University. Take Bank of America, for example, which split the roles when Brian Moynihan was named CEO during the financial crisis.

Right now may not be the best time to take away Dimon's chairman role. He's had it since 2006 and stripping him of it would be an embarrassment for a leader who otherwise lead the bank through some of the most difficult periods in finance to date. At least one analyst says Dimon may leave the bank all together if the chairman role is taken from him. That's bad news since Dimon does not have a deep bench of potential successors.

Plus, academic research is fairly split on whether or not dual roles boost a company's financial performance. "The link between formal board leadership structure (separate or combined roles) and corporate performance is ambiguous and complex, both theoretically and empirically. No structural attribute of boards has ever been linked consistently to company financial performance," according to the Harvard Law School Forum on Corporate Governance and Financial Regulation.

"Dimon blew it horribly with the London Whale but you have to give him credit for his overall enviable track record. I don't think there's a good enough argument to take away the chairman role from him," Sabino says.