It is astonishing to see shareholders refusing to vote for the pay of some corporate directors in the
everyone thought that minority shareholders took no interest in shareholder
meetings and in the voting policy of companies in which they had invested! US
But what a surprise to see the pay of the JP Morgan CEO voted through by a wide margin at the very time that the bank had just released over $2 billion in losses due to underlying positions of some $100 billion!
Between these two contradictory attitudes, shareholders are faced by a reality: they 'adjust' directors' pay when companies post poor results (without this holding back directors' pay by the way). And the same shareholders have to cope with another challenge, namely time... Most JP Morgan shareholders voted before the announcement of the loss, which had probably been postponed (given the date of the loss) so as to avoid the risk of a vote rebelling against the board.
But despite such contradictions, a poor performance on the stock market following the crisis is (at last!) prompting some minority shareholders to wonder about certain practices and the role of boards of directors who do not or hardly penalise directors when objectives are not met. This has led to this trend of shareholder revolts on directors' pay, which is in fact the primary penalty if results are poor.
But JP Morgan's losses raise a much more fundamental issue for minority shareholders and regulators in developed countries. JP Morgan is classified as a "universal" bank that operates worldwide on all markets and in all banking businesses ranging from retail banking to investment banking. It is acclaimed for its expertise and skill in controlling risk, notably trading risks.
The bank admitted it did not control its $100 billion exposure and the related risks. Apart from after the trading losses of some banks including Société Générale, all banks tightened up their internal control procedures including JP Morgan but its internal controls did not or could not detect the risks arising from such exposure! Either they were aware of the position, or they did not know how to control it... whatever the reason, this argues for separating the trading and investment banking activities from the deposit taking business so as not to threaten the retail banking business.
This is the purpose of our resolution put to the Société Générale shareholders' meeting held on May 22; 24.75% of shareholders voted in favour.
Olivier de Guerre
Chairman of PhiTrust Active Investors