What the JPM Chairman/CEO Vote Means for Other Banks

Jamie Dimon may well keep his dual leadership role at JPMorgan Chase (JPM), but bank chief executives won't be so lucky in coming years.

The prolonged and contentious debate over whether Dimon should hold the chairman and CEO titles, culminating in the shareholder referendum set for Tuesday, has exposed a governance issue at many banks. More than two-thirds of the 15 biggest U.S. commercial banks currently give both titles to one executive, despite recurring shareholder protests and proposals to separate the roles (see table).

Now the debate raging at the country's largest bank will increase the pressure on other bank boards to split up combined chairman/CEO roles, industry veterans and corporate governance experts say.

"Once you introduce a name like a Jamie Dimon, who's a standard-bearer for the industry, there's a lot more attention" to the question of splitting chairman and CEO roles, says Sandler O'Neill analyst R. Scott Siefers. "It has the potential to trickle down to others."

At the very least, the battle at the nation's biggest bank has given disgruntled shareholders more ammunition when confronting bank management. An investor in Regions Financial (RF), whose main dispute with the bank involves the ownership title to his racing yacht, recently sent a letter to shareholders arguing that his case illustrates broader corporate governance problems at Regions. His letter also railed against the bank's decision to give the chairman's title to CEO Grayson Hall this year, citing the debate at JPMorgan and arguing that such combinations "usually limit long-term shareholder returns."

Banks have faced intermittent shareholder pressure to separate the chairman and CEO roles in recent years, especially since the financial crisis highlighted the lapses in governance at many of the country's biggest financial institutions. Bank of America (BAC) and Citigroup (NYSE:C), both hit hard by the mortgage meltdown, now have separate chairmen.

"I think you've seen an evolution in the last ten years, especially in banking, where there has been a much greater emphasis on making sure that [boards are] providing oversight," says Guggenheim Securities analyst Marty Mosby, a former chief financial officer at First Horizon (FHN). "Unless the company is pretty bulletproof, with no issues with any risk management things, [shareholders are] going to lean toward separating the two roles."

Banks were already under some scrutiny over their governance practices "because of the financial crisis," says Broc Romanek, editor of TheCorporateCounsel.net. "People are still concerned about their risk management practices … and if you get someone with unchecked power, bad things tend to happen eventually."

Diane Glossman, a former longtime bank analyst who now consults and sits on the board of financial companies, says that more change is inevitable - but likely to be slow.

"The long-term trend is toward a recognition that splitting a chairman and CEO's role is probably a good thing," says Glossman, a director at Ambac Assurance and WMI Holdings, a remnant of Washington Mutual. "Ten years from now, will a significant number of these top 15 institutions have a split role? I think the answer is yes, but a year from now will it look that different? No. … It typically takes a while for the benefits to catch on and move throughout the industry."

Most big banks have tried to defend their status quo. This year, Wells Fargo (WFC) and U.S. Bancorp (USB) successfully rebuffed shareholder proposals to separate their chairman and CEO jobs. The investment bank Goldman Sachs (GS) averted a similar vote by reaching an agreement with a shareholder group that included beefing up the responsibilities of its lead director.