Jamie Dimon flags concern over 'undue influence of proxy advisors'; JP Morgan AMC to diminish their role

JP Morgan Chase's chief Jamie Dimon wrote that JP Morgan Asset Management's proxy voting process is now being changed to enhance the role of the portfolio managers role.

Undue influence of proxy advisors is one of the key reasons for a shrinking public market in the US, according to Jamie Dimon.

In his annual letter to the shareholders, the Chairman and CEO of the JP Morgan Chase said that many asset managers rely on stewardship committees, who in turn rely on proxy advisors. He added that what is "more troubling" is that these stewardship experts "make it harder for actual portfolio managers to override this decision making".

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Given the increasing power of proxy advisors, Dimon also called to attention the two big proxy advisors guide institutional investors' voting in American companies. He then pointed out that these advisories' owners are Canadian and German, and questioned if they should determine American corporate governance.

He wrote, "There are essentially two main proxy advisors in the United States. One is called Institutional Shareholder Services (ISS), and the second is called Glass Lewis. These proxy advisors started out providing reams of data from companies to help their institutional investor clients vote on proxy matters (information on executive compensation, stock returns, detail on directors, policies and so on). However, they soon also began to provide advice on how shareholders should vote on proxy matters. And, in fact, institutional investors generally execute their voting on an ISS or Glass Lewis platform, which often includes a clear statement of the advisory service’s position."

He added, "I should also point out, because it may be relevant, that ISS is owned by Deutsche Boerse, a German company, and Glass Lewis is owned by Peloton Capital, a Canadian private equity firm. I question whether American corporate governance should be determined by for-profit international institutions that may have their own strong feelings about what constitutes good corporate governance."

Dimon wrote that asset managers may rely on various information sources to support their decision making but their votes "should ultimately be based on an independent application of their own voting guidelines and policies".

On how proxy advisories influence the voting of asset managers through stewardship committees, Dimon wrote, "Almost all asset managers receive proxy advisor data and recommendations; while some asset managers vote completely independently of this information, the majority do not. Most asset managers have formed corporate governance or stewardship committees that are responsible for their voting, and these committee positions are often held not by portfolio managers and research analysts (i.e., the people buying and analyzing the individual securities) but by stewardship experts. While it is good to have stewardship experts, the reality is that many of these committees default large portions of what they do to proxy advisors and, more troubling, make it harder for actual portfolio managers to override this decision making."

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JP Morgan Asset Management's proxy voting process is now being changed to enhance the role of the portfolio managers and to address the perception of asset managers’ reliance on third-party advisor voting recommendations, stated the letter.

Towards this, there will be more portfolio manager participation in proxy committee decision making; the role of proxy advisor's recommendations will be diminished; companies and its managements will be given greater access to the ultimate decision makers at the asset manager; and companies will be told how the asset manager has voted once their decision is made rather than waiting until votes are finally counted.