A Lesson In Fiduciary Responsibility For Jamie Dimon

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Fiduciary responsibility, in a modern vs. ancient sense, began almost 1000 years ago when knights, leaving for the crusades or battlefield, entrusted their estates to a friend or advisor who would execute fiduciary oversight over it, to the best of their ability and as if it were their own property.  By the 19th century, Massachusetts codified fiduciary law, which was followed by U.S. law, that in simple terms, required fiduciaries to manage monies and assets to which they have been entrusted to the best of our ability with the highest return at a reasonable risk.

Jamie Dimon, Chairman and CEO of JPMorgan Chase, recently announced that JPMorgan Chase would no longer finance companies in the business of building and running private prisons.  Of course, this sector, like the oil and natural gas sector, tobacco, firearms, and many others, are all under pressure from some politicians due to the falsely perceived negative nature of the industries. Public pensions have been particularly targeted by activists in this space and have been for more than 20 years. Take for example my time as Connecticut Treasurer in the early 90s. During that time, the Connecticut pension system was severely underperforming, yet activists urged us to divest from tobacco stocks (I didn’t). Politically-motivated divestment movements continue interfering with the fiduciary responsibility of public pensions. Now, it’s also interfering with the fiduciary duty of banks.

What makes Dimon think that fiduciary duty does not also apply to corporate leaders?  We call it a responsibility to shareholders. Did Dimon make a fiduciary decision? Does he think private prison companies are a bad investment? Simply because a company, which is operating legally, is a part of a currently politically disfavored industry, does not necessarily mean that the company is a financial risk. In fact, the opposite seems to be true. Over the last two years private prison stocks have grown rapidly, with 60% growth across the two main stakeholder’s share value - far outpacing S&P 500 growth in the same time period.

Instead of focusing on the business, JPMorgan is caving into activists who are starting to lose the battle with public pension divestment movements. For example, there has been increased pushback against divestment from the California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the U.S. New board member Jason Perez led the charge for CalPERS to oppose a California bill to divest from public prisons, and the fund voted in the March 18th investment committee meeting to oppose the legislation. Other funds are taking notice, realizing that our public pensions must first and foremost serve their beneficiaries. Politics can’t play a role in fiduciary decisions for public pensions, and they shouldn’t for banks either.

Beyond the lack of fiduciary reasoning for JPMorgan’s recent decision, the political argument is weak at best. Much of the activist pressure is based on opposition to President Trump’s immigration policy. However, private companies don’t dictate government policy and shouldn’t be punished simply for fulfilling the contract as stipulated by the government. Instead, these companies are boons to the local economies in which they operate, and provide necessary jobs to keep the economy healthy, ultimately helping ensure that returns remain strong for shareholders.

Where will Dimon’s political intrusion into shareholder value stop? Last week, Harvard University announced that consuming sugary drinks dramatically increases mortality. Will JPMorgan still finance Coca Cola and Pepsi?

Rather than play politics with shareholder value, Dimon should fulfill his fiduciary duty to shareholders and stop injecting a personal political position into what companies the bank will finance. The decision is a fiduciary one, and should never be a political one.

I have spent the past 38 years in service to our country in the military, elected office, and appointed office, and as an international banker. I served 36 years in the