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Boards on Their Backs

WASHINGTON, DC – The recent governance controversy at JPMorgan Chase has masked a much larger issue. Regardless of Jamie Dimon’s victory in retaining his dual role as CEO and chairman of the board, the more important failure on display was that of the board of directors itself – a problem that affects almost all of the world’s megabanks.

This is completely obvious at JPMorgan Chase. The report of the recent bipartisan investigation, led by US Senators Carl Levin and John McCain, into the infamous “London Whale” trades provides just one example. There is also the litany of complaints and legal cases now surrounding the firm. It is difficult to see JPMorgan Chase escaping its past anytime soon.

But the problem is much broader: Not a single global megabank has a well-functioning board. Their members kowtow to CEOs, do not examine management decisions closely, and, with very few exceptions, rubber-stamp compensation requests.

Big banks’ boards are supine for three main reasons. First, and most important, there is no market for control over the biggest banks. One cannot build up a significant shareholding and use it to put pressure on boards – let alone pursue a hostile takeover. The London Whale is a case in point. The pressure brought to bear on JPMorgan Chase was completely inconsequential – nothing significant will change.