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Big Vote on Dimon May Hinge on Views on JPMorgan’s Top Director

Jason Alden | Bloomberg | Getty Images

In his 12 years as chief executive of Exxon Mobil, Lee R. Raymond had a reputation for bulldozing analysts and long-winded shareholders and going toe-to-toe with government authorities.

Now as the lead director on the board of JPMorgan Chase, a crucial shareholder vote on splitting Jamie Dimon's jobs as chief executive and chairman could hinge on whether the 74-year-old Mr. Raymond is seen as strong enough to stand up to Mr. Dimon.

Mr. Raymond was well known for his ferocity as chief of Exxon Mobil, unafraid to cut off gadflies in midsentence during investor meetings.

"He is formidable," said Fadel Gheit, managing director of oil and gas research for Oppenheimer & Company. "He was never bashful to tell you just how wrong you were."

Yet a year after the bank posted a multibillion-dollar trading loss that has helped drive out top lieutenants, spurred federal inquiries and prompted Cgressional hearings, a growing number of investors are questioning whether Mr. Raymond has done enough to fortify risk controls and root out problems, say some of JPMorgan's biggest shareholders.

"I am really surprised that there has not been more blood spilled in the boardroom," Mr. Gheit said. "It's totally alien to the Lee Raymond I know."

For some investors, the nonbinding vote, the result of which will be announced on May 21, is about good governance, not personalities.

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"You have a complex, risk-laden financial institution. Jamie should run the business and someone else should run the board," said Michael Garland, executive director for corporate governance in the New York City comptroller's office. "The board needs to take aggressive action to demonstrate to regulators and shareholders that it is exercising strong independent oversight."

But other shareholders say they are taking a close look at Mr. Raymond and his role at JPMorgan, saying they need to figure out whether he has been an effective counterbalance to Mr. Dimon. If not, they said, they will probably vote to split the roles and push the board to find a chairman.

Mr. Raymond did not respond to requests for comment.

He has his defenders, who say he is a strong leader and a driving force behind decisions to claw back millions of dollars in compensation from executives at the center of the botched trades.

"He is resolute and independent," said Lawrence A. Bossidy, a former chief of Honeywell International who served with Mr. Raymond on JPMorgan's board. "He has shown the ability to take serious and respective action in response to the trading losses."

Douglas A. Warner III, who led J.P. Morgan & Company when it agreed to be acquired by Chase Manhattan for $30.9 billion in 2000, praised Mr. Raymond's leadership as a J.P. Morgan director during that merger.

"Keep in mind, J.P. Morgan had not been in a merger since 1959, and it was a big and important decision," Mr. Warner said in an e-mail statement. "Lee led the board and management through the deal, that provided very good value for shareholders, short-term and long-term."

That company merged with Bank One in 2004 to form the current banking company.

The vote on whether to separate the chairman and chief executive roles is sure to be close. While Mr. Dimon has been careful not to tip his hand as to his plans in recent meetings with shareholders, according to various attendees who spoke on the condition of anonymity, investors are factoring in the possibility that Mr. Dimon may resign if they vote to split the roles.

A few major shareholders could swing the vote either way. In 2012, 40 percent of shareholders supported splitting the positions. In recent weeks, two shareholder advisory firms, Institutional Shareholder Services, or I.S.S., and Glass, Lewis & Company, have urged investors to vote for the split.

During a recent call with Mr. Raymond, Martha Carter, global head of research for I.S.S., said she raised concerns that three directors on the board's risk policy committee — David M. Cote, James S. Crown and Ellen V. Futter — lacked strong risk management backgrounds.

Ms. Carter said she also pressed Mr. Raymond to explain why the board had not gleaned risk-management lessons from Wall Street rivals like Morgan Stanley and Citibank, which overhauled risk controls after recent trading mishaps.

While the three directors had served on the risk committee when JPMorgan navigated through the financial crisis, Ms. Carter said she asked Mr. Raymond to explain why the three board members had not been replaced by others with more experience. Mr. Raymond told her that it was a challenge to find qualified board members.

And instead of shaking up the risk committee, Mr. Raymond and other directors renewed their support for the board members. This month, for example, the board urged Ms. Futter to recommit to staying on the committee, according to two people briefed on the matter.

In a seven-page letter to shareholders on Friday, Mr. Raymond and William C. Weldon, chairman of the board's corporate governance committee, said the risk committee "has the requisite experience, knowledge, judgment and dedication to oversee the risk management processes."

Still, Mr. Raymond rallied the board in January to cut Mr. Dimon's compensation by more than 50 percent, to $11.5 million, say people briefed on the matter. Mr. Raymond also led an independent board inquiry into the losses, resulting in a report released in January.

Other shareholders, pointing to JPMorgan's robust earnings—last month the bank reported its 12th consecutive quarterly profit—say they are perfectly happy with Mr. Dimon.

"My perception is this is an old-fashioned board, Jamie runs the show and we don't mind," said Christopher C. Grisanti, whose firm owns 246,000 shares of JPMorgan Chase worth roughly $12 million. "We don't think the lead director at JPMorgan exercises that much power, and that is a positive because Jamie is one of the best C.E.O.'s in our portfolio."

Some investors who are focused on the strength of the lead director, however, question whether Mr. Raymond, known for his brusqueness, is effectively reining in Mr. Dimon, who can also appear brusque at times.

At the bank's investor day this year, for example, Mr. Dimon jokingly tossed aside a question from an analyst by remarking, "I'm richer than you." These investors, who spoke on the condition of anonymity, say the moves by Mr. Dimon only augment his reputation as arrogant at a time when the bank is fast losing credibility in Washington.

But others close to JPMorgan say Mr. Raymond provides sound counsel to Mr. Dimon, while noting that the comment to the analyst, Michael Mayo, was meant as a friendly joke.

At least eight federal agencies are investigating the bank. The Federal Energy Regulatory Commission is weighing a crackdown against the bank for its energy trading activities, according to company filings.

The bank received a scathing document in March from investigators at the energy commission that claimed JPMorgan had concocted "manipulative schemes" that transformed "money-losing power plants" in California and Michigan into "powerful profit centers," according to a copy of the document reviewed by The New York Times. The bank denied wrongdoing and said it will fight the accusations.

Some people who have a long history with Mr. Raymond say he is no pushover, even though he has not publicly asserted himself recently—with the exception of the letter on Friday.

During an investor meeting at the St. Regis Hotel, Mr. Gheit of Oppenheimer recalled, Mr. Raymond eviscerated an analyst for asking the same question twice.

"In front of more than 200 people, Lee told the analyst that the answer hadn't changed from 15 minutes earlier."

Mr. Raymond's approach inspired respect among investors and more than a little trepidation, said Mr. Gheit, who said Mr. Raymond seemed to know Exxon's details "cold" and could answer the most arcane question without hesitation.

Mr. Raymond, who led Exxon to record profits after joining the company in 1963, never shied away from a tough battle. When he led the company's settlement with the Justice Department over the Exxon Valdez oil spill in 1989, Mr. Raymond was an unrelenting negotiator, according to Charles E. Cole, a former Alaska attorney general who helped broker the deal. At the last minute during negotiations in Washington, a Justice Department attorney proposed changing one of the settlement terms, Mr. Cole recalled.

A grim silence prevailed, Mr. Cole said, as Mr. Raymond considered the change. "I was digging my fingers into the arms of this overstuffed chair," Mr. Cole said. "Without raising his voice, Raymond said the change was unacceptable and it was clear from his tone that he was serious."

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