Dimon?s role in JPM hinges on small, unknown firm

The shareholder vote on May 21 has emerged as a referendum on the leadership of Dimon after a multibillion-dollar trading loss last year and dust-ups with regulators. While not binding, a majority vote to have a separate chairman and chief executive would be a heavy blow to the influential banker.

It is not known how Governance for Owners will vote BlackRock?s approximately 6.5% stake, but a few influential shareholders could tip the outcome. Last year, some 40% of JPMorgan?s shares supported dividing the top jobs, although BlackRock did not.

Another call for a split came on Tuesday from Glass, Lewis, a shareholder advisory firm, which also urged investors to withhold support for six of the bank?s 11 directors. Its larger rival, Institutional Shareholder Services, on Friday supported a split and recommended against voting for three directors. Both reports also raised questions about the independence and qualifications of several board members.

?JPMorgan Chase strongly endorses the re-election of its current directors. This is the same board, risk committee and audit committee that helped guide the company through the financial crisis without a single losing quarter and has led the company through three years of record performance,? said Kristin Lemkau, a JPMorgan spokeswoman.

In deciding how to vote, some JPMorgan shareholders are weighing whether the board?s lead director, Lee Raymond, the no-nonsense former chief executive of Exxon Mobil, is a strong enough counterbalance to Dimon. Some question whether Raymond has pushed back enough on decisions made by Dimon, saying he and the board appear to have been largely reactive. His defenders point out that he is a strong personality and was instrumental in the decision earlier this year to slash Dimon?s compensation by more than 50%, to $11.5 million.

Having a strong lead director has been important to BlackRock. The firm has previously said that it supports companies that do not have an independent chairman if the lead director is a strong figure and has, for example, the power to set board meetings and call meetings where management is not present.

In voting, Governance for Owners does not have to follow BlackRock?s corporate governance philosophy, but will take it into account, according to people briefed on the matter. Governance for Owners, which advises shareholders on how to vote and also runs a small shareholder activism fund, did not respond to requests for comment.

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.

Behind the scenes, JPMorgan has been aggressively working to persuade shareholders to support having Dimon hold both the chairman and chief executive titles. Most shareholders will not vote until the week before the May 21 meeting and in the leadup, board members are sitting down with some of JPMorgan?s biggest shareholders to make their case.

?There?s a fundamental conflict in combining the roles of chairman and CEO,? Anne Simpson, the director of corporate governance at Calpers, the big California public pension fund that is the bank?s 50th-biggest shareholder. ?It?s all thrown into stark relief when you?re dealing with a company that?s too big to fail.? The pension fund plans to vote for a split.

Some directors and top bank executives say privately that it should be up to the board, not shareholders, to make the decision to sever the two roles.

They also contend that shareholders need to put the trading loss by the bank?s chief investment office in London in context. While the loss was damaging, they note it was an isolated incident and in some ways things have never been better at the bank. Last month, the bank reported its 12th consecutive quarterly profit, aided by strong revenue gains from investment banking and mortgage-related activity.

Still there is some concern that investors are unhappy with the fallout from the trading losses and persistent regulatory issues, wondering whether a board shake-up is needed to rein in Dimon.

The report by ISS cites ?material failures of stewardship and risk oversight? by the bank?s board after a multibillion-dollar trading loss last year.