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JPMorgan board members targeted by shareholder advisers

Results of election to be announced May 21

Melissa Harris

Chicago Confidential

May 12, 2013

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JPMorgan Chase, one of the nation's largest banks, survived the financial crisis better than most — only to have the $6 billion "London Whale" trading loss last year expose embarrassing flaws in its accounting and risk controls.

Influential shareholder advisers are now calling for a more personal reckoning at the top of the company.

Two groups, Institutional Shareholder Services and Glass, Lewis & Co., are urging shareholders to reject the re-election of three board members, including billionaire Chicago business executive James Crown. Glass Lewis also is calling for a no vote on members of the firm's audit committee, including Chicagoan James Bell, who is chairman of the Chicago Infrastructure Trust and a retired Boeing Co. chief financial officer.

The results of the vote will be announced at JPMorgan's annual meeting May 21.

Crown, president of Henry Crown & Co., is being targeted because he leads the firm's risk policy committee. Members David Cote and Ellen Futter also were recommended for removal. Futter is president of the American Museum of Natural History in New York. Cote is chief executive of Honeywell International.

ISS, in its 33-page report, said the three "appear to lack robust industry-specific experience. ... While Mr. Crown leads a privately owned investment company and has three years of investment banking experience, it is unclear if his experience is sufficiently robust for a large and complex institution like (JPMorgan Chase)."

In comparison, ISS found other risk committees included members with financial services or financial regulatory experience. Crown worked at Salomon Brothers for about five years, leaving in 1985.

Glass Lewis, meanwhile, pointed out that because JPMorgan traders were able to hide their losses for a time, the company had to restate its financials, dropping net income for the first quarter of 2012 by $459 million.

"We believe that shareholders may justifiably expect that the audit committee ... should act to ensure that the bank's traders cannot obfuscate the values of their positions with as much ease as evidently occurred in the London Whale matter," Glass Lewis wrote. Without criticizing Bell specifically, the firm later added, "In this case, we believe that members of the audit committee have not satisfactorily performed their duties in this regard."

In a filing Friday, the board said it opposes changes to its makeup and said Chief Executive and Chairman Jamie Dimon should not be forced to give up the chairman's role.

"The events surrounding the (2012) losses were unique and idiosyncratic," directors Lee Raymond and William Weldon wrote to shareholders. They later added, "Indeed, one of the principal causes of the losses ... was the failure to apply the same processes and disciplines in CIO (the London-based chief investment office, which oversaw the so-called Whale) that the Company has in place for its client-facing businesses. We do not believe that one can fairly extrapolate from the losses in CIO a broad condemnation of the Risk Policy Committee's work."

Bell, who joined the bank's board in 2011, and Crown declined to comment. Michael Pryce-Jones of the CtW Investment Group, which represents union pension funds that hold 6 million shares in JPMorgan, attended a meeting with then-Chief Risk Officer Barry Zubrow and Crown in New York in April 2011 to raise concerns regarding the bank's risk controls.

"Almost all of (Crown's) experience comes from inside his family's businesses, and that's largely a black box," Pryce-Jones said. "So we don't see a background that gives him the expertise to oversee a large trading organization."

The Crown family operations are intentionally opaque.

Crown's grandfather Henry Crown began buying shares in First National Bank of Chicago in the early 1970s after the bank's stock crashed following the Hunt Brothers' failed attempt to corner the silver market. First Chicago merged with Bank One, where James Crown and fellow board member John Hall recruited Dimon to be its CEO in 2000.

When JPMorgan purchased Bank One in 2004, Dimon rose to lead the combined company and Crown joined the bigger bank's board.

According to public filings, James Crown and his immediate family control about 12.3 million JPMorgan shares, or about 0.3 percent of the company.

Since 2003, James Crown has overseen his family's assets, which are organized around investments in real estate, stocks and privately held companies.

He has six siblings. Brothers, brothers-in-law, cousins and cousins-in-law are involved in the leadership of Henry Crown & Co. and its affiliates, CC Industries and Longview Asset Management. Managers of all of these businesses ultimately report to him, and he signs off on all major investment decisions.

On the real estate side, the family holds a stake in Rockefeller Center and the Chrysler Building in New York and owns its headquarters building, 222 N. LaSalle St. in Chicago. The family frequently co-invests in real estate with New York-based Tishman Speyer, a partnership that goes back three generations.

The family also holds a significant stake in defense contractor General Dynamics, where Crown is the lead independent director. He also was the chairman of Sara Lee Corp. when it split into two companies in 2012. Family members have investments in the Chicago Bulls, Chicago White Sox and New York Yankees.

What is less known is that the family also owns companies outright, including food processing equipment producer Provisur; trucking company Great Dane Trailers; the Aspen Skiing Co., which owns the Snowmass resort and The Little Nell hotel; and bus manufacturer Gillig LLC.

"He's never been CEO of a publicly traded company, but you don't have to be CEO," said Newton Minow, an attorney with Sidley Austin and a family friend. "What you have to have as a board member is judgment. That's the main thing. And he's got excellent judgment."

Pryce-Jones twisted that concept another way.

"We hear people say these board members bring perspective," he said. "Well, I can bring perspective. JPMorgan needs more than perspective. What they need is expertise."

Rivkin staying in Washington

Robert Rivkin, the former general counsel at both Aon and the CTA, has left his post as general counsel of the U.S. Department of Transportation and joined Delta Air Lines as senior vice president and deputy general counsel for regulatory and international affairs, based in Washington.

Rivkin's former boss, Transportation Secretary Ray LaHood, has announced he will step down from the Cabinet once a replacement is confirmed. Rivkin said he chose to stay in Washington afterward because his wife, Cindy Moelis, continues to run the White House Fellows program and his children are in high school in Washington and thriving.

Rivkin oversaw the popular "cash for clunkers" program early in President Barack Obama's first term. He said he was most proud of that effort; the administration's additional funding for infrastructure; and the consumer protections the department won for airline passengers.

"I realize that's slightly ironic considering where I am now," he said of becoming an airline executive.

He described Congress as "fully dysfunctional" and worried that it lacks the ability to compromise on both funding and a strategy for how to get the country's roads, ports and bridges "back in a state of repair."

"All you have to do is travel around the world, which I'm going to be doing a lot of, and see what other countries have done, from the train station in Berlin to the Asian airports" he said. "This notion that we have the best public infrastructure is 40 years out of date."

Melissa Harris can be reached at mmharris@tribune.com or 312-222-4582. Twitter @chiconfidential