Case 1:The Imperial CEO, JPMorgan Chase’s Jamie Dimon
Jamie Dimon, CEO of JPMorgan Chase & Co., is one of the very few top executives at large banks or major financial services firms who was unscathed by the sub- stantial economic recession which began in 2008—a recession largely caused by those firms taking inap- propriate risks. He is described as charismatic and an excellent leader. Yet, in 2012, JPMorgan Chase experi- enced its own scandal caused by exceptional risk taking. Traders in its London operations were allowed to build a huge exposure in credit derivatives that breached the acceptable risk limits of most analytical models. As a result, the bank suffered losses of more than $6 billion. It is referred to as the London Whale trading debacle. In 2013 and 2014, there were large regulatory and legal settlements. Most significant was a $13 billion settle- ment with regulators over mortgage bond sales in 2013. In addition, to this record settlement, “the bank paid $2.6 billion to resolve allegations that it didn’t stop Bernie Madoff’s Ponzi scheme and two fines of about $1 billion each stemming from currency rate manipula- tion and the London Whale trading loss.” It may need an additional $20 billion in additional capital to satisfy reg- ulatory bank safety rules. One Democratic Senator from Delaware, Ted Kaufman, noted: “I think Jamie Dimon is Teflon-coated.”
Because of the huge loss and concerns about the lack of oversight that led to these fines and settlement, there was a move by shareholder activists to separate the CEO and chair of the board positions, requiring Dimon to hold only the CEO title. Playing key roles were the American Federation of State, County and Municipal Employees (AFSCME) and the Institutional Shareholder Services (ISS). The AFSCME was pushing to separate the holders of the CEO and chair positions at JPMorgan Chase. The ISS was pushing for shareholders to withhold the votes for three directors currently on the Morgan’s board policy committee.
Dimon described the London Whale debacle as an anomaly caused by the inappropriate behavior of a few bad employees. However, this debacle plus the huge fines and settlements seems to suggest serious weaknesses in the bank’s oversight of activities involving significant risk and compliance with regulatory rules.
Executives and board members of JPMorgan Chase worked hard to thwart these efforts. Lee Raymond, the for- mer CEO of ExxonMobil who has been on the JPMorgan board for 28 years, played a key role in these efforts to support Dimon and avoid a negative vote. This group lobbied major institutional shareholders and even asked (though he declined) former U.S. President Bill Clinton to help work out a compromise with the AFSCME. They even suggested that Dimon would quit if he had to give up one of the roles and it would harm the stock price. In the end, Dimon and the bank won the vote with a two- thirds majority for Dimon to retain both positions.
Several analysts decried the vote and suggested that having a third of the shareholders vote against Dimon is not a major vote of confidence. One even suggested that the vote is not surprising because of the 10 largest institu- tional owners of the bank’s stock, seven have CEOs who also hold the chair position. So, how could they openly argue that this is bad for JPMorgan when they do it in their organizations? Furthermore, these major institu- tional investors want the banks to engage in high-risk activities with the potential to produce high returns. This is especially true because the downside risk of losses is low as the government cannot afford to allow the big banks to fail.
One analyst suggested that the shareholders voted out of fear (potential loss of Dimon) and for personality instead of good corporate governance. Analysts for the Financial Times argued that the outcome of this vote demonstrates how weak shareholder rights are in the United States. Finally, another analyst noted that while splitting the CEO and chair positions does not guarantee good governance, it is a prerequisite for it. Lee Raymond suggested that the board would take action. Several speculate that such actions will not relate to Dimon duel positions, but rather to a reconfiguration of the board members on the risk and audit committees. Some have argued that certain members of these committees have little knowledge of their function and/or have financial ties to the bank, thereby creating a potential conflict of interest. One protection for Dimon is that the JPMorgan Chase continues to perform well, even with poor ratings from governance evaluators.
Question: What do you recommend to improve the governance system specifically for JPMorgan Chase but also overall relative to the system of governance devices ?
Case 2: Unilever Cooperates with Many Firms and Nonpro t Organizations to Implement Its Strategy While Creating a More Sustainable Environment
Unilever, a European-headquartered (in both the Netherlands and the United Kingdom) consumer prod- ucts company, is committed to using a sustainable envi- ronment strategy while manufacturing its large array of food and beverage products. Historically, consumer products companies, especially those from Europe, have pursued the multidomestic strategy, needing to adapt their products to each country or region mar- ket. Accordingly, most have implemented their strat- egy using the worldwide geographic area structure. Many consumer product companies, such as Avon, have begun to use aspects of the worldwide product struc- ture to become more efficient. This is also the case with Unilever. However, Unilever has continued to empha- size geographic areas, but it has done so using the trans- national strategy while implementing the combination structure to meet local market responsiveness as well as global efficiency objectives. Moreover, its CEO, Paul Pullman, who took the job in 2009, has also suggested, “our purpose is to have a sustainable business model that is put at the service of the greater good.”
Accordingly, Unilever created a manifesto in 2010 called the Sustainable Living Plan. This plan calls for Unilever to double its sales at the same time that it cuts its environmental footprint in half by 2020. One goal embed- ded in this plan is to source all of the firm’s agricultural
products in ways that “don’t degrade the Earth.” Unilver also has a campaign promising to improve the well- being of one billion people by “persuading them to wash their hands or brush their teeth, or by selling them food with less salt or fat.” It seeks to realize many of these goals through cooperative strategies with other profit-seeking organizations as well as nonprofit entities.
In 2010, for instance, Unilever signed a contract with Jacobs Engineering Group Inc. forming a global (overall corporate) alliance to facilitate the efficiency of Unilever’s capital improvement projects around the world. Unilever has 250 manufacturing sites and is expanding aggressively, especially in developing and emerging economies, to support its ambitious growth goals. Unilever expects emerging economies to drive 75 percent of its growth in the long term. The alliance with Jacobs Engineering will be managed out of Singapore and will provide engineering services for Unilever’s manufacturing facilities around the world. Both companies will “work as a team to insure their sustainable growth model,” implement cost reductions, and “drive co-innovation and implement the harmonization and cross-category standardization of designs.” The alliance will also work with supply chain team members to increase speed to market with designs that “reduce carbon, water, and waste footprints across its manufacturing sites.”
In alignment with marketing growth goals, Unilever has initiated the Unilever Nutrition Network. This organization has divided the world into six regions and focused on providing world-class nutrition and health innovation. Its goal is to generate ideas to facilitate sus- tainable product launches and improve existing products while strengthening their brand value. As part of this overall strategy, Unilever has used Salesforce’s Chatter technology in the implementation of its new social mar- keting platform. This technology allows local markets and distributors of Unilever products to share insights and best practices with the marketing team from Unilever to help drive its “crafting brands for life” strategy.
In a recent Sustainable Living Plan report, Unilver described how it is working with a number of nonprofit, nongovernment organizations (NGOs) to help address real issues, facilitate solutions for suppliers for improv- ing sustainable living, and reach customers in society at large who need information to improve their sustain- ability approaches to life with better food security and poverty alleviation. Initiatives include partnering with the following NGOs: the Consumer Goods Forum; the World Business Council for Sustainable Development; the World Economic Forum; the Tropical Forest Alliance 2020; Refrigerants, Naturally; the Global Green Foundation Forum; and Zero Hunger Challenge and Scale-Up Nutrition initiatives supported by the United Nations.
Interestingly, Unilever no longer provides quarterly earnings guidance reports and suggests that this has allowed it to focus shareholders on its longer-term goals. Furthermore, since Pullman took over in 2009, Unilever has sustained its positive growth trajectory with better income performance and associated stock market performance. As can be seen, it is accomplishing these things through better organizational design, lofty objectives, but also by using a number of cooperative strategies with many organizations outside the organization, such as Jacobs Engineering and many NGOs.
Question: What issues about organizational structure surface as a result of Unilever’s proposed strategies and objectives regarding sustainability?
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