Thursday, May 16, 2013


Remember our old friend Prof. Steve Davidoff of THE Ohio State University, he of the buggered explanation of the Foreign Sovereign Immunities Act?  This time around he has written a very interesting piece in the N.Y. Times on the goings-on at J.P. Morgan and the attempt to separate the roles of Chairman and CEO presently held by the World's Greatest Banker, Jaime Diamon...until a self-proclaimed large mammal in London managed to get it all wrong to the tune of $6.5 billion.

Anyway, Prof. Steve explores the issue and correctly points out that all of the hoot and hollar about the benefits of separating the two jobs if the belief is that banks are too big to be managed by one person is really silly.  To begin, it is foolish to believe that banks are going to decline in sheer size in the modern world.  Then again, as he rightly points out, a Chairman's real responsibilities are calling meetings of the board and presiding over them.  A Chairman is merely one person on, in J.P. Morgan's case, an 11 member board.  So too are there studies pointing out that where there is a strong, independent board...also mostly the case at J.P. is unclear what the separation will actually accomplish  He concludes, and I think correctly that this is really all about the concern for the :too big to fail" syndrome on the part of certain shareholders and as an attempt to send a message to Jaime who, even his closest supporters will admit, is a long way from being Mr. Cuddly all the time.

Fair dos, but this seems like a hell of an expensive way to make that point, and while I agree with the main thrust of Prof. Steve's piece, there is one piece of factual evidence that I think he has overlooked and that is of course the happenings at Citigroup.

I have throughout my life become more and more of a believer that it is not the structure that enables success but the people within the structure.  Citigroup instituted a split chairman/CEO structure right after the crisis simply because the guy who had both jobs wasn't a schmoozer which was desperately needed inasmuch as the government was the owner of the institution and schmooze is what the government is about.  Problem was, of course, the schmoozer wasn't within a Stone's throw of being a banker and while surviving, the institution wasn't moving forward.  Enter Michael O'Neill as chairman, and while calling meetings and presiding over the same he set agendas and the first on THAT list was the removal of the CEO.  Forget about the stock price which has risen 50% in the last six months, Citibank, whilst continuing to have multiple problems, is well on its way to becoming the leading banking institution in the U.S.  It's all about focus and that is what a tough, independent chairman can bring when the CEO has the wrong idea or as was the case, apparently none at all.  Boards do not bring that, individuals do, but of course it must be the right individual and in that all important role of corporate governance, I come down on the side of two heads are better than one.
Funny, but if you want to see another example of this in a banking environment, take a look at Standard Chartered about 15 years ago.  Same actions, same result.  Look, there is no doubt Diamon is a hell of a CEO and for the most part, with a bit of luck, he has done a fine job.  But frankly, no form of organization was going to prevent the London Whale from spouting foul deeds.  It is the people, always the people, and from time to time they get complacent and examples must be and have been made.  Of course, it might be helpful to have an independent and permanent organization structured around the CEO's office which, when required, would have the sole duty of saying, "Jamie, PLEASE SHUT UP!"

We are off to the East Coast for the wedding of one of my former students.  It's always really gratifying when something like that happens as it makes you believe that perhaps you've done good in some person's life.  I'll have the IPad along for the next week, so keep looking.  And thanks Carter for your insight into politics and Co-Op bank which I hope can be discussed next week.


1 comment:

  1. I like this perspective on the JPMC/Jamie saga:

    "@EpicureanDeal: People don't get that Jamie Dimon's threat to resign is itself proof of failure at his biggest job as Chairman: prepping a CEO successor. +"

    "@EpicureanDeal: + Not only that, but Dimon has proactively fired potential successors like Bill Winters and Scott Black to remove threats to his power. +"

    ...I'd add "and countless others...Heidi Miller, etc

    "@EpicureanDeal: + Dimon may be a great CEO, but he's a shitty Chairman. He does not deserve the job. Profit has nothing to do with it."