We talked last week about how shareholders are really the last people you’d want running a bank, if you’re the sort of person who doesn’t like banks. Conveniently Jesse Eisinger is that sort of person, and he’s pissed at shareholders for how they’re running banks:
Shareholders can’t be counted on.
That’s the message from the dispiriting shareholder vote on whether to leave Jamie Dimon as both the chief executive and the chairman of JPMorgan Chase, or to split the roles. Even more shareholders backed him in his dual role this year than did last year.
For some time, reformers have hoped that shareholders might ride to the rescue to solve the problem of Bank Gigantism, otherwise known as Too Big to Fail.
Big-bank critics, like the freethinking analyst Mike Mayo, analysts at Wells Fargo, and Sheila Bair, the former head of the Federal Deposit Insurance Corporation — and others, including me — have raised the possibility that shareholders might revolt over banks’ depressed stock valuations and seek breakups. Broken-up banks would be smaller and safer.
No, it’s not going to happen. Shareholders are part of the problem, not the solution.
The problem in this telling is basically the limited liability corporation, which gives shareholders an option on the corporation’s assets; option pricing theory, which informs shareholders that volatility – of earnings, of “high-risk, high-return bets” where shareholders “capture the unlimited upside and their losses are capped” – increases the value of their option; and modern corporate governance, which informs bankers that they work for the shareholders and therefore should be maximizing the value of that option. With the bets and so forth. Read more »
Jamie Dimon’s continuing employment as chairman and CEO of JPMorgan Chase may or may not be an interesting case study in shareholder rights and corporate governance, but the most interesting question in bank governance is really “who cares what shareholders think?” Like: a bank is a bunch of depositor and creditor money, largely backed by explicit and implicit government guarantees, topped with a thin layer of shareholder-capital icing, and run for the benefit of that layer of icing. The shareholders are in charge because that’s how it’s done in every other sort of company, and because they bear the riskiest risk, but they certainly don’t bear the most risk on a sheer notional basis. And, since their shares are an almost at-the-money option on a vast pile of assets, they tend to have a fondness for volatility that other stakeholders might find disconcerting.1
The CEO is supposed to be the chief employee, leading his or her organization to deliver on the agenda and objectives the Board of Directors has set. The CEO is an operating executive.
The Chairman, on the other hand, is supposed to lead the Board of Directors in setting the agenda, strategy, and objectives of the corporation, in response to its employers, the shareholders, and all the other myriad stakeholders (employees, regulators, government officials, vendors, community members, and customers) which have a say or a stake in the activity of the firm. The Chairman and other directors of the corporation are stewards. They are not supposed to get down in the weeds, day to day, operating the various parts of the business. That is the CEO’s job. But as stewards they are supposed to think about the what-ifs, the perils and opportunities that may or may not confront the firm in the future, and the problems and threats which may be festering beneath the glittering surface of excellent corporate performance.
One way of reading that is that the CEO goes to work every day to make money for the shareholders: his job is to increase net income. Read more »
He said he was going to quit if stripped of the chairman role, and god damn it, he meant it but luckily: 1. It did not come to that and 2. He got distracted watching that Harlem Shake video Lloyd sent him and fell down a rabbit’s hole of different versions on YouTube, waking up this morning with his face on the keyboard and an email that began “I believe it was John Pierpont Morgan who famously said, ‘You can all go fuck yourselves'” saved to drafts. Read more »
Back in August, it was revealed that Goldman Sachs had added a disturbing element to its cost-cutting efforts: plant murder. The lobby philodendrons? Gone. Boston Ferns by the elevator? To the dumpster. The third floor Geraniums that lined the windows? Left for dead.
The While every bank on Wall Street is bracing for serious reductions in staff, compensation and “extras,” Goldman had been the only one to date that choose to commit genocide to help its bottom line. Employees were, understandably, shocked by the decision, which reportedly “provoked disquiet at the bank,” with some putting their jobs on the line to “block the move, leading to a stand-off between the plant pickers and staff. In some cases, a solution was found only after employees agreed to sign forms guaranteeing to take responsibility for particular plants.”
At the time, other institutions scoffed at the seemingly heartless move to save a few bucks, claiming you’d never catch them following suit. And yet? According to the Times, Goldman is not alone. Read more »
Goldman Sachs announced yesterday that it has so far been hit with six shareholder suits (on top of the SEC stuff, and in addition to a little criminal investigation by the Justice Department). And that’s fine, it’s no real sweat of Lloyd’s sack, or the sacks of Gary Cohn, or Lucas van Praag, either. Sure, it threatened to disrupt the trifecta’s viewing of last night’s Real Housewives of New Jersey premiere but that was really it. An annoyance, yes, but one they’ve vowed to get used to, as suing GS is de rigeur among the peasants these days. If you think any of this is actually hurting them, as I’m sure many are hoping, you are sorely mistaken. The only time Lloyd feels pain is during the unfortunate times he runs into Viniar air-drying post soak and the obligatory bimonthly manscaping sessions downtown (you can’t dip them in liquid gold unless they’re completely hair-free). But you know who it is hurting? The children. Read more »
A few months ago, a number of Goldman Sachs shareholders suggested that they have some sort of say on Lloyd Blankfein and the rest of his team’s pay. At the time LB and Co humored them because of the whole public image crap, and since it’d been suggested in their sensitivity training classes to “take a second and listen to what others have to say,” no matter how stupid they may be. Finally the torturous period of enforced “acting like you care” ended and my god, it felt so good to fire off a note letting clients know that next time, before drafting a letter full of feelings and ideas re: how the company should be run, to ask thyself, “Does anyone in the c-suite give a shit about what I think?” Most people feel in line but either the scamps at the Christian Brothers Investment Services didn’t get the memo or they’re trying to workshop some sort of comedy routine because what they’re suggesting is a real gas. Read more »