Tag Archives: Jamie Dimon

Can JP Morgan Manage Its Human Rights Risk?

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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.

God and Mr. Dimon

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While protestors at the JP Morgan Chase annual shareholders meeting in Columbus, Ohio braved the rain and faced off with police, inside the McCoy Center there was a remarkable exchange.

“As a person of faith, my God believes you shouldn’t take advantage of people when they are down,” said Dawn Dannenbring, of the community group Illinois People’s Action, addressing CEO Jamie Dimon. “Do you believe in the same God I believe in?”
Dimon answered: “That’s a hard one to answer.”

Of course, whether Jamie Dimon believes in a merciful God is a matter for him to decide and settle with his own conscience. Whether he believes in the same merciful God Dawn Dannenbring believes in is probably impossible to answer, or would, at least, require an extended theological discussion. And neither Dimon nor Dannenbring seemed ready to have that conversation. The JP Morgan Chase CEO obviously wanted to get on with the business of the shareholder meeting. And Dannenbring was less interested in knowing the secrets of Mr. Dimon’s heart than in playing Portia to his Shylock and shaming him.

Dannenbring’s motives aside, her question echoed other recent criticism of Mr. Dimon. On the blog Credit Slips, Adam Levitin attacked Dimon a couple of weeks ago for having no concept of mercy after Dimon said, in an exchange with CNBC’s Maria Bartiromo, that some people find themselves in better financial circumstances after foreclosure, and that, moreover, foreclosure is a form of debt relief: “Giving debt relief to people that really need it, that’s what foreclosure is.” Levitin was baffled:

For real?… “Debt relief” requires a forgiveness of debt. It’s a gift, not an exchange. There’s no quid pro quo….I can’t fathom how Dimon conceives of foreclosure as an act of mercy.

Over at Naked Capitalism, Yves Smith picked up on Levitin’s criticism: “the Dimon moral calculus is fascinating. If foreclosures are kind, is it even kinder to restore debtors’ prisons? After all, those people who lose their homes would be assured of getting shelter.” If today’s bankers believe in God, Smith says, they must believe in the angry God of the Old Testament, the same God who strips Job of his possessions and reduces him to sackcloth and ashes.

That Jamie Dimon is now being put in the company of Goldman’s Lloyd Blankfein and other tight-fisted ministers of vengeance is all the more remarkable because Dimon is regularly held up in management literature (like this Introduction to Leadership[pdf]) and in the business press as an example of great leadership.

“Outspoken, profane, fearless,” as one CNN Money profile describes him, Dimon is regularly praised for having steered JP Morgan Chase away from the subprime crisis, exiting the business of securitizing subprime mortgages at the height of the boom and forgoing both Structured Investment Vehicles and Collateralized Debt Obligations, or CDOs. Notably, neither New York Attorney General Eric Scheiderman nor Senator Carl Levin, who are independently investigating criminal wrongdoing in the subprime crisis, have named Dimon or JP Morgan Chase as a target of their investigations. Even Matt Taibbi has focused his pieces for Rolling Stone on Goldman, not JP Morgan Chase.

For some, no doubt, it is a question of degree: while certain CEOs led their banks into criminal activity, others offered little relief to those caught up in the mortgage crisis. Perhaps both are to blame, and thanks to Levin and Schneiderman at least some of the criminals will now face justice.

But rather than expect the CEO of a global bank to forgive debts, or bear witness to his faith in a merciful God, I would prefer to know what constructive steps, if any, the banks are taking now to help the American middle class regain its footing and rebuild trust – not necessarily in God, but in the everyday workings of the American economy.

In other words, why ask for mercy when you can demand responsibility? I wish Maria Bartiromo would press Mr. Dimon in their next interview to talk specifically to this point, and to articulate clearly the obligations his company has, and the steps his bank will take, to help restore — what else to call it? — the common wealth. The exchange might be one for the leadership books.