NEW YORK Two ranking JPMorgan Chase & Co(JPM.N) directors issued a letter to shareholders on Friday arguing against recommendations by proxy advisory firms to split the duties of Chairman and CEO Jamie Dimon and vote against some directors.
The board is unanimous in its view that it is best for Dimon to hold both roles and the current governance structure "is working effectively," according to the letter signed by presiding director Lee Raymond and William Weldon, who is chairman of the corporate governance and nominating committee.
The letter warned that a vote against current directors or to split the CEO and chairman roles "could be disruptive to the company and is not in shareholders' best interests."
The letter is a direct response to reports in the past seven days from advisory firms Institutional Investors Services and Glass Lewis & Co. The firms concluded that investigations of the bank's $6.2 billion loss on the "London Whale" derivatives trades showed the board had failed in its oversight of JPMorgan executives.
The incident is cited in policy debates in Washington as evidence big banks need to be broken up or required to hold much more capital for the safety of the financial system.
Both advisory firms recommended JPMorgan shareholders vote against re-election of three board members who served on the board's risk policy committee when the losses occurred.
The advisory firms generally take the view that having a board chairman who is separate from the CEO in a company leads to better oversight. They said the London Whale episode showed that JPMorgan was no exception.
The board letter on Friday said the firms "and others have incorrectly and unfairly characterized management's mistakes as a failure by the risk policy committee."
The letter was issued ahead of the bank's annual meeting on May 21 when shareholders will vote on the board's recommendation that all 11 directors be re-elected for another year.
The ballot also includes a non-binding resolution proposed by some shareholders that calls on the board to have a chairman who is independent from the CEO.
The vote on splitting the roles has come to be seen as a referendum on Dimon, 57, who was widely praised for leading the bank profitably and safely through the financial crisis and then saw that reputation tarnished by the trading debacle.
The seven-page letter came one year to the day after the company announced it was losing billions of dollars on the trades. Dimon had previously dismissed news reports of possible losses as a "tempest in a teapot."
The letter said the advisory firms focused "too narrowly" on the losses and a broader view of the company's performance shows Dimon and all of the board members should be supported in the voting.
The company reported record earnings and scored well on measures of profitability, including 15 percent returns on tangible common equity, every year for the last three years, the letter said.
"We highlight the performance of the Company not to diminish the events of last year or the lessons learned from them, but to provide important context," the letter said.
The letter defended by name the three directors on the risk policy committee who ISS said should not be re-elected. It said the three directors--David Cote, who is also chairman and CEO of Honeywell International Inc, (HON.N) James Crown, who is president of private investment firm Henry Crown and Company, and Ellen Futter, who is president of the American Museum of Natural History--had worked diligently and have "accomplished backgrounds."
The letter said there was no reason that the trio should have seen that a trading strategy which had successfully hedged the bank's credit risk had turned into a losing bet.
The directors said it depends on the situation whether it is best to have one person or two as chief executive and chairman. They noted that the board had split the roles when Dimon first became CEO and when his predecessor, William Harrison, first became CEO under another chairman. (Reporting By David Henry in New York; writing by Lauren Tara LaCapra; Editing by Gerald E. McCormick and Andrew Hay)