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Weekend Read – Odd contradictions

from Peter Radford

Jamie Dimon, CEO of JP Morgan Chase writes his annual letter to shareholders, Wall Street quivers in anticipation at his wisdom.  This year’s is a doozy.  Dimon, it seems, wants to explain to us all that corporations play many roles in society and are not simply focused on “short term rapacious profit taking” (his words, not mine).

Let me begin with an aside: why it is that an annual communication from a CEO to the shareholders of a corporation that he/she leads is thought newsworthy in some general sense?  Why is it not treated as a minor activity all CEOs are expected to indulge in?  Why is society at large meant to listen in and, perhaps, learn a thing or two?  Personally, I blame the cult of CEO personality, which is an absurdity that, by itself, demonstrates the depths to which recent capitalist fads have sunk.  Be that as it may, the Dimon missive is highly anticipated, perhaps because of the enormous oligopolistic presence that J.P. Morgan Chase commands in the economic landscape.

Dimon doesn’t let us down and I am going to limit myself to just one of the many messages of his letter.  I am assuming he considers it the most important because he addresses it first.  This is his view on what he calls the “Corporate Citizen”.

Where to begin?

Well, Dimon lets it be known he is a shareholder too.  Presumably this is to create a sort of bonhomie with his readers.  Dimon must think his message will sound better if they all think he’s one of them.  So he starts with a clubby beginning to set them at ease.  Then he launches into what he must regard as a much needed discussion about corporate citizenship, which he subtitles “The Purpose of a Corporation”.  This is grandiose to say the least.  Dimon never tackles head on why it is that he needs to define or defend the purpose of a corporation, although he alludes to what I suspect is his motive.  We are all wrong, he intimates, when we think big businesses like his think only about shareholder value.  No.  There are many more things that corporate leaders worry about.  Here are the key paragraphs:

“The problem with the American public’s impression of “shareholder value” is that too many people interpret it to mean short-term, rapacious profit taking – which, ironically, is the last thing that leads to building real, long-term shareholder value. And when they hear the word “fiduciary,” they think we are standing behind our lawyers.

Obviously, companies have fiduciary responsibilities. However, legal and fiduciary language does not represent how most CEOs and boards actually run their companies. We should not be buttonholed by the debate about whether there are “fiduciary” reasons to think of “shareholder value” narrowly and to the exclusion of those who work at the company, our clients and communities. When most CEOs and board members wake up each morning, they worry about all of the things that they need to do right to build a successful company. A company is like a team. We must do many things well to succeed, and, ultimately, that leads to creating shareholder value.”

On the face of it Milton Friedman must be turning over in his grave.  In Friedman-land the shareholder is indeed the only entity a CEO has to be concerned with.  Nothing else matters.  Get the most for the shareholders and all will be fine.  I realize, of course, that getting the most for the shareholders implies balancing all those the messy claims on CEO attention, but at the end of the day we all know what we are solving the equation for: returns on equity.  Dimon appears to be wandering from this righteous path, but on closer examination Friedman has nothing to worry about.

Apparently we, the public, misunderstand when CEOs make all those statements about seeking to achieve maximum returns for shareholders.  It isn’t that the corporation is trying to maximize short term profits, it is trying to maximize longer term profits.  Although it’s always less problematic to describe profits as “value” which is somehow a softer more acceptable word for the same thing.  And, notwithstanding all those statements made to the financial analysts who hover around at every quarterly earnings update, the corporation has no singular fiduciary responsibility to its shareholders at all.  It is only concerned about that value thing.

And, no, corporations do not stand behind their lawyers.  Not at all.  Anyone who has read the various contactual documents and disclaimers that accompany even the pettiest of consumer loans will attest to this.  The lawyers are inconsequential.  The agreements are short, concise, clear, and fair.  Every time.  Really.

It seems Dimon wants us to think he has somehow seen the light and that he now realizes that the singleminded pursuit of shareholder value is one of the most rotten aspects of the entire rotten neoliberal enterprise.  He even attaches a copy of the recent Business Roundtable statement on the purpose of the corporation to reinforce our understanding of his conversion.

Now, I don’t know Jamie at all, but he seems to lack a little self-awareness.  Last I looked (yesterday in fact) J.P. Morgan Chase still makes quarterly earnings announcements.  In my world that implies a focus on the short term.  If the bank is truly committed to long term activity, why does it feel the need to send out quarterly updates on its progress?  It seems a contradiction.  And don’t tell me that it’s because of the pressures of Wall Street.  Heck: Jamie is a revered denizen of Wall Street.  Who better to buck the trend?  Especially one that he just told us is not representative of the very purpose of his own organization.

Before I go too much further I want to draw your attention to the pride that Dimon takes in his bank’s largesse.  It actually pays its lower ranking front line workers something approximating a living wage.  He tells us that the bank has been making efforts to raise wages and now pays those folks between $16 and $20 our hour, depending on where in the country they are.  That comes out to between $33,280 and $41,600 a year.  According to the U.S. Census Bureau the national median income is $31,133.  It’s almost as if the bank’s human resource department pitched its wage scale to just above the median.  Hey, how great is that?  J.P. Morgan Chase pays above the national average.  How benevolent.  Dimon’s letter doesn’t get into the details of his own paycheck, nor that of his top executives.  I imagine they’re all paid with that same national median in mind also.  Maybe not.  Or maybe the HR department pitches the executive pay at some multiple of the median.  Like a multiple of roughly 1,000 times in Jamie’s case.  Goodness, the work he must do!

And notice that word “effort”.  As in the bank is making an effort to raise wages.  What silliness!  It is being made to sound as if the bank is fighting some humongous natural force.  No it isn’t.  Raising wages is an arbitrary and bureaucratic decision.  The force against which the bank is fighting is not a massive external one, it is a modest internal one: its desire to maximize profits.  It isn’t being rapacious mind you.  It’s just being … well, you know.

Oh, and the bank gives a lot of cash away in various philanthropic activities.  $330 million last year.  That’s a lot.  Just one thing niggles me though: would they have donated that much were it not tax deductible?  Was the philanthropy a tax dodge?  Or were they really committed to those various causes?  The true test of that commitment would be for them to donate the cash and then not take the tax deduction.  I know, I am being silly.  Why not take the tax deduction?  Whoever wrote the tax code thinks philanthropy is a good enough reason to give big business a nice tax break.  Whoever wrote the tax code?  Like the banks via their intense lobbying?

And now the second contradiction.

The bank, we are told is going big into fighting racial inequity.  Here’s the lead-in paragraph to that section of Jamie’s letter:

“JPMorgan Chase introduced The Path Forward in October 2020, committing $30 billion over the next five years to address the key drivers of the racial wealth divide, reduce systemic racism against Black and Latinx people, and support employees. The firm has made tangible progress to date.”

What follows is a longish list of activities that fall under “The Path Forward” initiative.  The bank is to be congratulated in getting moving.  It may have taken a while, but stuff is now happening.


Dimon is also, as I am sure you are all aware, a prime  mover of the U.S. Business Roundtable, who’s recent missive on corporate responsibility he attaches, as I mentioned above, to his letter.  So he seems keen to attach himself and the bank to the current wave of corporate sentiment regarding how to act as a positive force in society.  Presumably the bank’s project to tackle racial inequity can be seen through that lens.

Then why didn’t Dimon sign the recent petition organized by black corporate leaders decrying the attack on democracy in Georgia?  Does the bank’s commitment to racial inequity not include equal voting rights for its minority employees?  Over two hundred other CEOs and corporate bigwigs signed it.  Why not Dimon?  We might guess as to why the CEO of Walmart failed to sign — he said it was because Walmart is non-political.  Sure.  Then again it might have something to do with the sympathies of the Walton family.  I might disagree with the Walmart decision, but I can understand it.  The Walton’s have a different point of view.  So, what’s Jamie’s excuse?

All his blather about being a good corporate citizen goes up in smoke if his definition of citizenship doesn’t extend to include the right to vote.

Friedman, of course would be laughing at this stage.  His adamant opposition to democratic expression — other than in the free market of commerce of course — is well known.  His skepticism of government as an expression of the popular will is even better known.  Apparently to Friedman and his ilk, people are hyper rational when voting as consumers, but stupid as heck when voting as citizens.  And Friedman’s extraordinarily narrow definition of the purpose of a corporation fits well within this cramped anti-social perspective.  So Friedman would be radically opposed to anything as dumb as corporate citizenship, and he would letting Dimon know in no uncertain terms that this contradictory mess that Dimon finds himself in could be easily avoided: just don’t claim to be a good citizen in the first place!

Dimon, though, is trying to tell us that he isn’t cramped in that same way.  He is telling us he, and his corporation, are much more engaged in society.  They are good corporate citizens.  Up to, and not including, the right to vote.  Apparently.

Am I missing something?  I thought citizenship and voting were pretty much intertwined.  What does Jamie know that I don’t?

I am listening …

  1. John B. Jensen
    April 17, 2021 at 8:17 pm

    Corporations are required to turn out quarterly reports – no choice, and they have to be accurate or analysts/investors will punish them. As an investor who doesn’t want them cluttering my mail I must sign off on refusing to have them.

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