Academic journal article Boston University Law Review

Successor Ceos

Academic journal article Boston University Law Review

Successor Ceos

Article excerpt


In 2013, for the second consecutive time in his seven years leading JPMorgan Chase as Chair of the Board and Chief Executive Officer, Jamie Dimon faced a shareholder vote on a measure that, if passed, would have forced him to surrender his chairman title.1 In light of the "London Whale" trading failure that resulted in a six billion dollar loss and launched a series of legal and regulatory investigations into the bank,2 this proposal to split the roles of chair and CEO came from a group of investors that collectively held about $820 million in JPMorgan shares.3

Proxy advisory firms Institutional Shareholder Services ("ISS") and Glass Lewis supported the proposal, mounting the pressure to separate the positions.4 ISS remarked that "shareholders would benefit from the strongest form of independent board oversight which an independent chairman could provide."5 Yet, despite the strong support from the advisory firms, Dimon managed to survive the challenge with 68% of the shareholder vote in his favor at the shareholder annual meeting in 2013.6

Jamie Dimon is not the only prominent CEO-chair to have faced such pressure from shareholders: Elon Musk, then CEO-Chairman of Tesla, Inc., faced a shareholder proposal to split the roles of chairman and CEO in 2018.7 The proposal questioned whether Musk was able to give Tesla the attention it needed in light of Musk's leadership roles in several other companies.8 The proponent of the proposal wrote that "in this much more highly competitive and rapidly changing technology industry, it is more and more difficult to oversee Tesla's business and senior management (especially to minimize any potential conflicts) that may result from combining the positions of CEO and Chairman."9

Amplifying the pressure on Musk, ISS supported the proposal, noting in a report that "[shareholders would benefit from the strongest form of independent board oversight in the form of an independent chair," and that "it is important that the board of directors take steps to ensure that management remains focused on resolving the manufacturing challenges, and that the CEO and other executives do not get distracted by outside business interests or Twitter fights."10 Activist group Change to Win ("CtW") Investment Group, a major investor in Tesla,11 supported ISS's recommendation, saying that "the board needs to refresh to effectively oversee manufacturing, human capital management and regulatory changes."12 Despite the pressure he faced from shareholders, investment groups, and proxy advisory firms, like Dimon, Musk survived the challenge with 83.3% of shareholders rejecting the proposal.13

Ironically, a few months later, in September 2018, Musk declared on Twitter that he had secured funding for a massive buyout of Tesla;14 these claims led to a Securities and Exchange Commission ("SEC") investigation and subsequently a settlement agreement stipulating that, among other penalties, Elon Musk would relinquish his chairman title to an independent chairperson for at least three years.15 The SEC indicated that these requirements "are specifically designed to . . . strengthen[] Tesla's corporate governance and oversight in order to protect investors."16

The Tesla and JPMorgan shareholder campaigns, coupled with the SEC's focus on Musk's chair position, are indicative of two larger developments. First, shareholder pressure to separate the roles of CEO and chair has accelerated in recent years.17 Institutional investors have adopted voting policies that support proposals for separation,18 and ISS and Glass Lewis have advocated for such structures as well.19 Glass Lewis reported in its 2018 Proxy Paper Guidelines that splitting the positions produces a "better governance structure," and allows the chairperson to "better oversee executives and set a pro-shareholder agenda without management conflicts that a CEO and other executive insiders often face."20 Additionally, Glass Lewis reported that improved oversight allows for a "more proactive and effective board of directors that is better able to look out for the interests of shareholders. …

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