Laziness or Vigilance?

They say that insults are the weapon of the weak. However, the CEO of JPMorgan Chase & Co., the sixth largest bank in the world, is all but feeble. Nonetheless, Jamie Dimon resorted to insults to express his discontent following the assembly of JPMorgan shareholders, where his salary of $20 million was approved by a weak majority. When he spoke in New York on Wednesday, Dimon described certain major investors as “lazy,” “irresponsible” and incompetent.

Known for his outspokenness, Dimon was referring to the fact that institutional investors blindly follow recommendations from proxy advisory firms, namely Institutional Shareholder Services (ISS) and Glass Lewis, by far the most important ones. These firms analyze the proxy circulars distributed to the shareholders for the annual assembly and make recommendations about the votes concerning the directors’ payment and governance.

The influence of ISS and Glass Lewis has increased over the course of the last decade through statutory modifications. In the realm of business, there are many who estimate that investors rely too passively on the proxy advisory firms, a bit like they had done when the credit rating agencies had given their blessing to the infamous asset-backed commercial papers (ABCP).

The 2008-2009 crisis demonstrated that turning to specialized firms does not exempt the institutional investors from their responsibilities for analysis and judgment. Furthermore, it is difficult to understand why the financial market authorities, in Europe as well as North America, have chosen not to regulate the proxy advisory firms, merely encouraging stringency and transparency among them.

With that said, when Jamie Dimon blames the investors and the firms that advise them, he is attacking the wrong target or seeking to create a diversion. In view of the importance of the society that he directs, it is unlikely that many investors followed, without further analysis, the negative recommendations from ISS and Glass Lewis on the subject of his salary. Although the banking group’s shares have done well over the years, JPMorgan Chase & Co. has been involved in all sorts of dubious practices that have forced it to pay billions in fines. It’s not shocking that a growing number of shareholders wonder why the board of directors continues to pay the CEO more than $20 million a year.

This is not about laziness, but instead, an essential vigilance. The lazy investors were greater in number before the crisis, and this apathy has permitted the emergence of foolish remuneration practices. We don’t recall Dimon denouncing that laziness …