Not unlike other major banks or non-bank financial institutions, JP Morgan Chase & Co. (JPM) racked up billions of dollars in fines and other penalties (over $38 billion), while no executives or bank directors went to jail; only owners pay, not those in management. Corporate fiduciaries are protected by mandatory indemnification, Directors and Officers Insurance (D&O), the business judgment rule (“a presumption that in making a business decision the directors act in an informed basis, in good faith, and in the honest belief that action taken is in the best interest of the company”), and through exculpatory clauses. In other words, for Delaware corporations (a majority of the Fortune 500), if a company wants to further protect directors, it can sharply reduce the probability that a director could be liable.
HII, based upon a very sorry record of JPM legal compliance and its history of penalties, lawsuits, and fines, believes that executives and directors should be required to sign a covenant with corporate stakeholders, if there are future fines and penalties, directors themselves should share the costs with shareholders.
Because our colleague, John Chevedden, also submitted a resolution relating to the “claw back of executive compensation,” similar to his resolution introduced at Citibank mentioned above, we withdrew our competing proposal.
Shareholder Resolution 2017
Whereas, since 2010 our Company has paid more than $28 Billion in penalties and fines across at least 10 different types of offenses including securities and mortgage abuses, banking and investor and consumer protection violations, foreign exchange and energy and interest market manipulations;
Whereas, during this time the Company claims to have “undertaken a significant effort to examine how we can more rigorously…adhere to … high ethical standards” and recognizes the effort “requires constant vigilance and steadfast commitment”,
Whereas, in these efforts our executives and officers have created dozens of new committees and job titles, re-organized its organizational chart and produced thousands of pages of internal behavioral reviews and reports,
Whereas, our Company was yet again in the press for agreeing to a settlement of approximately $264 million to resolve civil and criminal charges stemming from “Sons and Daughters” hiring practices in Asia which have been characterized by an Assistant US Attorney General as “corruption, plain and simple.”
Whereas, our Company’s engagement in business conduct creating systemic risk –despite the new committees and accountability reports– may continue to harm stakeholders, while senior management and directors have largely escaped financial hardship and individual and collective responsibility;
Whereas, in the 2015 publication Better Bankers, Better Banks: Promoting Good Business Through Contractual Commitment the professor-authors argue that a covenant between financial executives and their bank, requiring personal liability for a portion of any fines and fraud-based judgments the bank enters into, including legal settlements, is a needed change to post-crisis banking culture to help reduce unfair shareholder losses for corporate employee misconduct,
Resolved, that shareholders request the board of directors issue a report reviewing senior executive compensation policies, to assess the feasibility, above and beyond matters of legal compliance, of requiring senior executives to enter a covenant as part of the contract renewal process in which they would be required, regardless of their personal fault, to reimburse the corporation for a portion of any fine or penalty imposed during the contract period on the corporation by federal or state regulators or courts for activities which pose systemic risk or which are substantially harmful to consumers. Such report should be prepared at reasonable expense and exclude proprietary or legally privileged information.
A no-fault contractual agreement between JP Morgan Chase and its senior executives may place individual responsibility on executives and their colleagues to curb behavior that creates systemic risk or substantially harms consumers, which often results in losses to shareholders. Such a covenant between our bank and management could not only motivate senior management to be personally responsible for monitoring their own behavior, but also to be on the alert for colleagues’ misbehavior and unethical activities.