Yahoo Finance Wall Street bosses tested by calls to strip them of power
Some of Wall Street’s most powerful bosses are facing new proposals this spring that would strip them of power by separating their CEO and chairman seats.
Shareholders at Goldman Sachs (GS) and Bank of America (BAC) will decide on such a proposal Wednesday, ruling on whether David Solomon and Brian Moynihan get to keep their dual roles.
In May, JPMorgan Chase’s (JPM) Jamie Dimon and BlackRock’s (BLK) Larry Fink will also face such tallies. And Citigroup (C) shareholders will vote next week to formalize a CEO-chair split in its bylaws, even though the company has had an independent board chair since 2009.
It’s not just Wall Street facing new calls for CEOs to give up some of their power. Thus far in 2024, shareholders have submitted 29 such proposals at S&P 500 companies, and more are expected, according to data provider ISS-Corporate.
Other well-known financial sector companies facing such proposals this year are insurance giants American International Group (AIG), Allstate Corporation (ALL), and Prudential Financial (PRU) along with NYSE parent company Intercontinental Exchange (ICE). The same goes for Cleveland regional bank KeyCorp (KEY).
'Sometimes it helps, sometimes it doesn't'
Whether to split the CEO and chairman positions has long been the subject of hot debate within the corporate world, pushed by activists who argue that it reduces conflicts within an organization.
Companies often push back by arguing that a lead director can offer just as much independent oversight.
The pressure to split the CEO and chairman roles in the US really ramped up in the aftermath of the 2008 financial crisis. Between 2010 and 2023, 76 companies within the S&P 500 did so, according to ISS. By the end of 2023, nearly 60% of S&P 500 companies had those roles split.
Last year 69 companies in the S&P 500 faced such a proposal, nearly twice as many as in 2022.
All, however, failed.
The push to separate the CEO and chair roles "tends to go up when stock prices don't go over well at a company, and shareholders are looking for something to rattle management," Shivaram Rajgopal, a Columbia Business School professor of accounting and corporate finance, told Yahoo Finance.
"Sometimes it helps. Sometimes it doesn't, and the reason why that happens is because it's not the institution per se, it is probably the individual and how he or she exercises power in the company," Rajgopal added.
Many of these proposals are not typically successful and face long odds. Last year, the proposals at Goldman and Bank of America, for example, garnered just 16% and 26% support.
Investors will be watching to see how much support the new proposals get this year, especially at Goldman.
Solomon is emerging from his most challenging year ever as boss as dealmaking slowed across Wall Street and he grappled with a costly exit from consumer banking as well as a series of high-profile departures from the firm.
The firm’s profit declined by 24% and Solomon’s annual compensation still rose by the same percentage — to $31 million.
ISS and Glass Lewis are advising shareholders to cast votes Wednesday in favor of separating Solomon’s roles.
'An inherent conflict of interest'
Another vote that could get a lot of attention is at BlackRock, where Larry Fink will face the same proposal.
The head of the world’s largest money manager has become a target of political critics who charge that he and his firm are the preeminent examples of "woke investing," as well as others who say BlackRock is not living up to its environmental, social, and governance (ESG) commitments.
The shareholder that placed the proposal on this year’s ballot, Bluebell Capital Partners, falls into the latter camp. It said in its submission that "there is an inherent conflict of interest for a CEO to act as her or his own oversight as chair."
For Dimon and JPMorgan Chase, however, the proposal to revoke dual roles is certainly nothing new.
The country’s biggest bank has faced some kind of proposal calling for shareholders to vote for an independent chairman for all but three of the years since Dimon first held both the CEO and chair seats in 2007, according to JPMorgan's filings.
It is possible that it could happen one day, even if this year’s vote does not approve such a split. In 2022, JPMorgan’s board adopted a general policy to separate the chair and CEO positions once the 68-year-old Dimon steps down — "subject to the board’s determination."
"The odds are Jamie will become chairman" once he leaves as CEO, a person familiar with the situation told Yahoo Finance last year.
Dimon has made it clear he is not a fan of these proposals or the role played by proxy advisers Institutional Shareholder Services and Glass Lewis, which recommend how shareholders should vote on these proposals.
He criticized the firms for what he called a tendency to "automatically judge directors unfavorably if they have a long tenure on the board" and recommend "[splitting] the chairman and CEO role when there is no evidence this makes a company better off."
Wells Fargo banking analyst Mike Mayo said he questions some of those points made by Dimon.
"We think that proxy advisors give an extra voice to shareholders who otherwise have much less clout than envisioned in theory," Mayo said in a note released Wednesday, and that "'lead directors' do not always provide a substitute for an independent chair."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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