It is astonishing to see shareholders
refusing to vote for the pay of some corporate directors in the 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
