Question

. Read the following cases and answer the questions listed below:

The Imperial CEO, J.P. Morgan Chase’s Jamie Dimon: Is It the End of Corporate Governance?

Jamie Dimon, CEO of J.P. Morgan Chase survived the Great Recession quite well. However, in 2012 it suffered losses of more than $6 billion due to excessive risk taking by traders in its London operations. Some of the loss was attributed to poor oversight at the top. Shareholder activists sought, unsuccessfully, to split the positions of CEO and Chair of the Board. Executives and board members at J.P. Morgan Chase worked to keep the positions together. This is a statement on governing (in)effectiveness at the firm. The Opening Case speculates that because the same ownership structure exists at seven of the firm’s ten largest institutional investors’ firms, and that because these investors want banks to engage in high risk activities (because the downside risk of loss to them is low) these investors prefer the status quo governance arrangement. Whatever the reasons, this case does demonstrate how weak shareholder rights are in the U.S. and that boards seldom act in ways that are counter to effective oversight and control.

Question: What are the corporate governance issues highlighted in the case? Rationalize your response.

Answer 1

The corporate governance issues highlighted in the paragraph is that JP Morgan faces an agency problem wherein corporate managers are incentivized to take too much risk and this is also encouraged by the institutional investors because they have very little to lose. Under such a situation, the required oversight and corporate governance mechanism often goes for a toss and undue risks and exposure are taken which could be potentially harmful to share holders. Thus the need of the hour is to separate the role of the CEO and the chairman of the board and board should look after interests of the shareholders rather than solely focussing on maximization of profits.