Tag Archives: socially responsible investing

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.

Bank of America Shareholder Meeting – A Failure

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The Bank of America Board of Directors was on the defensive yesterday. There were protestors gathered outside the annual general meeting; security was high; inside, the mood was testy. In his opening remarks, Chairman of the Board Chad Holliday flubbed an announcement about question and answer time, prompting a shareholder to interrupt the preliminaries; and when Q & A on shareholder resolutions began in earnest, CEO Brian Moynihan stuck to terse, one-sentence, boilerplate answers to most questions, until one stockholder stood up and asked for “more nuance and explanation” and “a more thoughtful response” to the owners’ questions. General applause ensued, but the dialogue did not really improve. In that respect, the meeting felt like a lost opportunity: the Board simply refused to engage.

There were six shareholder resolutions but (as the Q & A revealed) really just three big issues on shareholders’ minds: executive compensation, predatory mortgage and lending practices, and political contributions.

One shareholder seemed to sum up the feelings of many in the room when he said that “it’s a comedy” to be a Bank of America shareholder, given the gap between the stock’s performance and the compensation of its executives. Several people directly asked Brian Moynihan to forgo (or, as one shareholder put it, “deny”) his raise for the coming year. This came to a head in an exchange with one shareholder, who said that the issue really came down to where Moynihan’s “heart” is. “Do you love your neighbor as yourself? Are you going to turn down your raise?” Like a boy at his catechism, Moynihan parsed the question and said that he had been raised to love his neighbor as he loves himself (how could he say otherwise?), but when it comes to turning down his raise the answer is simply “no”; and then he repeated a few prepared phrases about how his own compensation is “aligned” with the Bank’s strategic goals. That was his gospel.

Still, shareholders urged the bank to consider the “injustice” in the world, and Bank of America’s part in it. Activist shareholder Dawn Dannenbring (whose appearance at a JP Morgan shareholder meeting I blogged about here) asked the Board to think about why they need to have heightened security at their shareholder meetings: “If you were a better corporate neighbor,” she remarked, “you wouldn’t have to be so scared.” To charges that it had “decimated” the communities where it did business, the Bank responded with a bland assertion: “the success of communities is equal to our success”; at one point Moynihan even muttered the phrase “good for America,” but it sounded as if he had never really warmed to that talking point, and his voice trailed off.

Some tried to appeal to the bank’s business sense: if Bank of America is seen “not as part of the solution but as causing the problem,” it runs a “reputational risk.” That’s putting it mildly. Others were not so restrained: “You’ve got to stop foreclosing on families,” exclaimed one shareholder; and a number of people rose during the Q & A and told their own stories about how the bank – their bank – had ruined them. Moynihan was patient and even compassionate with these share-owning customers, and told them they could talk to a B of A “teammate” on the spot, that very day, about their problems. But the crowd was repeatedly reminded that these individual cases – their own cases or the cases of family and friends – did not bear on the proposals they had assembled to vote on. This was a myopic response at best, as if behind each of these proposals there were not thousands, hundreds of thousands, millions of individual stories that need to be told, and that make up the big picture of the bank’s role in America.

While the bank is reluctant to open a dialogue on its role in society, it is aggressive in its bid for political power and social influence. And in the wake of Citizens United, the battle lines around political spending are being drawn. A proposal to prohibit all political spending from the corporate treasury – which I wrote about in a previous post — received just 4 percent of the vote, but the resolution still counts as an important first step. Another political spending proposal, requiring Bank of America to disclose all grassroots lobbying, fared much better, garnering about 30 percent of the vote (right around the 32.73 percent it gained last year).

Calls for disclosure of political spending are getting harder to ignore. And though prohibitions and other checks on spending still face an uphill battle, the resolution to stop political spending at least gave shareholders a chance to say a few words about the risks and uncertain outcomes of profligate political spending. Shareholders cited research (by Hadani and others) to support their position; but it is hard to say whether this made any impression whatsoever on the Board. If so, they weren’t going to let it show. They just seemed to want to get the whole thing over with. They had not come to deliberate, or listen or learn. They had come to defend. And that is why the 2012 Bank of America shareholders’ annual meeting should be reckoned a failure.