Fact Versus Theory

By Alan Rudnick

The misguided effort to oust Jamie Dimon from the Chairmanship of JPMorganChase represents a sane slapdown of a “one size always fits all” mentality. To be clear, typically I think that separating the CEO and Chairman roles is a good thing. Independent boards have a full plate of functions that they are required or expected to perform. The CEO is not an independent director and cannot oversee the myriad responsibilities that fall upon the independent directors. However, I also believe that one size doesn’t fit all, and it is important to examine each company’s situation individually.

Too many players in the governance industry forget that the core purpose of good governance is to improve company stability and performance over the long term. Governance’s Holy Grail, for which the search continues, is a definitive empirical correlation between good governance and corporate success. Stated differently, this question involves which combination of governance practices and board qualities will result in sustained and healthy corporate performance, as expressed in terms of earning, cash flow, or other measures.

JPMorganChase, in fact, has had a record, albeit not an unblemished one, of sustained corporate stability and performance. Unlike its peers, this bank didn’t collapse or need government infusions during the financial meltdown a few years ago. A major screw-up last year resulted in a multi-billion dollar loss. However, even that huge loss did not threaten the company’s financial integrity. In fact, the company made money in spite of the trading loss, suggesting that bank management had in place strategies that offset disaster at one of its business units.. In other words, the healthy corporate performance that good governance is supposed to promote, indicated over time by various empirical criteria, seems already to exist at JPMorganChase.

Were there problems? Sure. Should the board have done something different? Possibly. Was the risk oversight function flawed? Yes. If Dimon were only the CEO and not the Chairman, would the problem be fixed? To answer this last question “yes” elevates theory over fact.

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