Sunday, May 27, 2012

Risky business

With such stellar experience as sitting on AIG's governance board, what went wrong?

JPMorgan Gave Risk Oversight to Museum Head With AIG Role Bloomberg
The three directors who oversee risk at JPMorgan Chase & Co. (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.

Futter, a former president of Barnard College in New York, joined the JPMorgan board in 1997. Her re-election this year was opposed by Washington-based investor group Change to Win and shareholder advocate Glass Lewis & Co. over her previous experience on the boards of AIG and Bristol-Myers Squibb Co.

Futter headed the audit committee of Bristol-Myers, a New York-based drugmaker, during an accounting scandal that began in 1999 and that the company settled for $300 million to avoid criminal prosecution. She also served on AIG’s compliance and governance committees, resigning in July 2008 before the insurer took a $182.3 billion bailout from the U.S. government.

Futter was criticized in newspapers and industry publications after she joined AIG’s board for accepting a $36.5 million donation for the museum from a charity run by then-CEO Maurice “Hank” Greenberg.

JPMorgan is a corporate sponsor of the museum and gave $1.5 million for an exhibit about water, according to the organization’s 2008 annual report. Dimon’s family foundation donated $25,000 in 2009, according to tax filings.

Kristin Lemkau, a spokeswoman for the bank, wouldn’t say how much JPMorgan or Dimon has donated to the museum, except that the gifts are less than 2 percent of the organization’s annual revenue, the limit set by the New York Stock Exchange for donations to charities that directors help manage.

The board reviewed the bank’s charitable donations and determined that “none of them create a material relationship” that would impede the independence or judgment of its directors, according to company disclosures.

Futter has received personal loans from JPMorgan, according to the company’s proxy statement, and was awarded $245,000 in cash and stock for her work on the board last year. The bank didn’t disclose the amount of the loans. Futter didn’t return phone and e-mail messages seeking comment.

The younger Crown, who worked at bond-trading firm Salomon Brothers Inc. for five years until 1985, was a member of the search committee that chose Dimon to head Bank One Corp., acquired by JPMorgan in 2004. Dimon and Crown’s father, Lester, are overseers of the Harvard Business School Club of Chicago.

The committee, which met seven times last year and hasn’t changed its composition since 2008, approves the bank’s risk- appetite policy and oversees the chief risk officer, according to the company’s April 4 proxy statement.

What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.

“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”

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