JP Morgan’s CEO Jamie Dimon was spot on after pointing out the laziness of shareholders who blindly followed consultants Glass Lewis and ISS by voting against Dimon’s pay package.
Here’s Dimon via USA Today:
“God knows how any of you can place your vote based on ISS or Glass Lewis, If you do that, you are just irresponsible, I'm sorry. And you probably aren't a very good investor, either. And you do. Believe me. I know some of you here do it because you’re lazy."
Now a few of ISS and Glass Lewis’s claims have some merit. JPM’s compensation disclosure is far from perfect, which unfortunately is par for the course in the proxy world.
The general level of disclosure in public company proxies is lacking. Bonuses are often based on vague goals, unverifiable metrics, or “adjusted” figures that usually skew to the benefit of management. It’s impossible for any diligent shareholder to have a complete picture of exactly how a board of directors rewards management.
However, the really appalling issue, as Dimon highlighted, is the widespread laziness of investors who are unable or unwilling to read a proxy and decide for themselves.
It’s a concerning trend that investors (the actual business owners) outsource the responsibility of proxy evaluation. Understanding the motivations and incentives of management and board behavior is a critical driver of investment success. Even a ballpark analysis of comp/bonus trends reveals egregious actions and disturbing board behavior. Missing these red flags has destroyed massive amounts of shareholder value.
Proxies are not a tough read for sophisticated investors. Yet some of the biggest (and supposedly sophisticated) investors can’t manage the ability to spend time reading the proxy. It boils down to an abdication of responsibility. It’s now the norm for investors outsource their thinking, creating a population of helpless investors who can’t form an independent opinion.
By deflecting responsibility towards sell-side research, ratings agencies, and corporate guidance, investors fall for the temptation of intellectual shortcuts rather than commit to hard thinking.
The overwhelming propensity of investors is to follow the herd and abandon any ability to think for themselves. The constant reliance on outside help lures investors into confusing information gathering with genuine analysis. The proxy issue is a symptom of a much larger problem: investors who have bigger and more confident opinions on investments they know less and less about. Institutional investors need to commit to full, independent, and thorough due diligence that is respectfully due to their clients.