No one questions Jamie Dimon’s competence. It’s just not clear that Mr. Dimon or “any executive,” as the Wall Street Journal put it, “can properly oversee such a large financial institution” as JP Morgan Chase. The complexity of the bank’s balance sheet and the scale and scope of its investments boggle even the best minds. The London Whale losses demonstrate pretty clearly that it’s possible for the bank to overlook, or miss or ignore serious exposure – to do something stupid or sloppy, as Dimon likes to put it. I wonder how many shareholders now wish they could re-cast their vote for an independent chair, to check and govern the CEO; and I wonder, too, how many will question the bank’s claim that it is capable of managing the human rights risk in its portfolio of investments.
As I pointed out in a previous post, most boards reject human rights proposals on three grounds: that they would be restrictive, burdensome, or redundant. The JP Morgan board stuck pretty close to this script in urging shareholders to vote against a resolution for a “genocide-free” investing policy, which would ensure that its investments did not “substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights, and to assist customers in avoiding the inadvertent inclusion of investments in such companies in their portfolios.” (You can read proposal 8 and the board’s response in the proxy statement here [pdf]).
Most immediately at issue are the banks investments in PetroChina and its subsidiary China National Petroleum Corporation, which pose “high risk due to their ties to the Sudanese government and its connection to human rights abuses.” That is not the hyperbolical cry of some outraged human rights advocate, but the sober and clear-eyed assessment of the board at T. Rowe Price; they joined 27 US states, 61 colleges and universities and the European Parliament’s pension fund in their decision to divest from PetroChina. JP Morgan, on the other hand, “increased holdings of PetroChina after being made aware of PetroChina’s connection to genocide,” CNN reports; and this year, again, the board confidently – some might now say arrogantly – asserted its ability to manage human rights risks:
We use our extensive risk management processes and procedures to consider human rights and other reputational issues associated with our businesses….The Firm has a robust risk management framework…, and management routinely reviews specific business clients and transactions including where appropriate for consistency with our Human Rights Statement.
This year, the board had its way. The “genocide-free” proposal went down in defeat, garnering only 9.2 percent of the vote (which, by the way, means it’s not going away any time soon.) But the losses in London, which could run as high as five billion and will be difficult to unravel, give the lie to the board’s argument that further human rights risk review would be merely redundant. To the contrary, the losses raise serious questions about the bank’s ability to manage risk — of any and every kind. Its much-touted risk management framework does not seem so “robust” as the board makes it out to be. And it appears Ina Drew and crew operated without routine reviews or oversight. How, then, can the bank ensure that its investments in PetroChina and around the world are not exposing investors to other, more serious risks?
I refuse to believe that most investors don’t mind blood on their money; their confidence should be shaken.
As for Jamie Dimon, London harbored his white whale. China may turn out to be his human rights dragon. It’s said that when he first discovered the extent of the losses in London he could not catch his breath. Imagine what might happen if Jamie Dimon really understood the atrocities in Sudan and the part JP Morgan has played in them.