Bank Settles Shareholder Claim for $5 Mil.

A northeastern Pennsylvania regional bank, which was accused of providing dubious loans to board members—among them Michael T. Conahan, the former Luzerne County Court of Common Pleas president judge who is now incarcerated after his conviction on charges stemming from the "kids for cash" scandal—has agreed to settle a shareholder derivative claim for $5 million.

DealBook: Strong Lobbying Helps Dimon Thwart a Shareholder Challenge

Haraz N. Ghanbari/Associated PressA proposal to separate the jobs of chairman and chief executive of Chase became a referendum on Jamie Dimon.

8:18 p.m. | Updated

Jamie Dimon and the 10 other directors of JPMorgan Chase had reason to be confident before they took private jets to Tampa on Monday, the eve of the bank’s annual meeting. Early indications were that a shareholder vote to split Mr. Dimon’s jobs as chairman and chief executive was heading to a resounding defeat.

There was just one problem: One director was not going to Florida.

Ellen V. Futter, a longtime member of the board’s risk policy committee who had come under fire over her lack of a background in finance, had decided at the last minute not to attend the meeting.

Ms. Futter, the president of the American Museum of Natural History, was sick of the swirl of negative attention surrounding her, worried that it needlessly detracted from JPMorgan’s strengths and that it might hurt the reputation of the museum, people briefed on the matter said. She wanted off the board.

A resignation by a bank director would have distracted from what was shaping up to be a victory parade for Mr. Dimon. The charismatic chief executive called her on Monday to try to convince her to stay, although he acknowledged that it was a personal decision, the people briefed on the matter said. That discussion was followed by calls from at least two other directors, the people said. They urged Ms. Futter to remain on the board, adding that her resignation would drag her back into the spotlight.

In the end, Ms. Futter, who narrowly eked out re-election, changed her mind.

Mr. Dimon’s art of persuasion was also in evidence on Tuesday as nearly 70 percent of the shares were voted to reject decisively a proposal for an independent chairman.

The shareholder vote had shaped up to be a rare challenge to Mr. Dimon, who was widely praised for piloting the bank through the turmoil of the financial crisis. Since the crisis, three years of consecutive quarterly profits at JPMorgan have added to his laurels.

Yet a surprising multibillion-dollar trading loss last year — one that has helped drive top lieutenants from the bank and produced a range of investigations — has raised questions about the chief executive’s leadership.

The shareholder resolution, while intended to improve corporate governance by having an independent chairman as a counterweight to a chief executive, became a referendum on Mr. Dimon himself. It was a test he easily passed.

“To some extent this was a referendum on Jamie Dimon, and he is quite unique and special and no one can deny that,” said Marvin Schwartz, a portfolio manager at Neuberger Berman, which controls roughly 12 million shares and voted against the resolution. “To hold against him one unfortunate loss in the trading area, I think, is quite unfair.”

Even though some 40 percent of the shares last year had supported a similar proposal to split the top two jobs at the bank, this year’s resolution was supported by only 32.2 percent of the shares. The divide in the vote was apparent, with institutional investors like Neuberger Berman voting overwhelmingly against the proposal and pension funds voting for it, according to people briefed on the matter.

In an e-mail to employees after the annual meeting, Mr. Dimon wrote: “I love coming to work here every day — and hope to be doing it for years to come.”

Chris O’Meara/Associated PressStockholders arrived for the JPMorgan Chase annual meeting on Tuesday in Tampa, Fla.

Shares of JPMorgan rose as much as 2.6 percent on Tuesday, before closing up 1.4 percent, at $53.02.

The hearty endorsement of the chief executive — which was announced on his 30th wedding anniversary — came after months of behind-the-scenes lobbying by the bank.

At its Park Avenue headquarters, JPMorgan assembled a war room where executives kept close tallies as shareholder votes began streaming in, according to two people briefed on the matter. To sway investors, these people said, influential board members were paired with large shareholders.

Part of the message was to remind shareholders that the directors were already a powerful check on Mr. Dimon, noting that board had earlier moved to root out problems in the aftermath of the losses and to claw back $100 million from the traders at the center of the outsized wagers.

The bank held conference calls with several big investors, including Neuberger Berman. Mr. Schwartz said that during that call, which lasted roughly 40 minutes, Neuberger portfolio managers had a “frank give and take” with JPMorgan executives.

Still, roughly two weeks before the shareholder meeting, the proposal sponsors were winning, according to people briefed on the tallies. The vote was going against Mr. Dimon.

On May 6, Lee R. Raymond, the lead director of the bank’s board, and William C. Weldon, the chairman of the board’s corporate governance and nominating committee, met with officials from the American Federation of State, County and Municipal Employees, one of the main backers of the proposal to divide the roles.

A close ally of Mr. Dimon even tried to enlist former President Bill Clinton to help broker a compromise with Afscme, according to two people with knowledge of the discussion. Mr. Clinton declined.

“I think that given the resources that the management and the board threw at this, it’s not a surprise that the vote was lower than last year,” said Lisa Lindsley, the director of capital strategies at Afscme.

The bank pulled other levers as well, some shareholders said.

“First we hear Jamie might leave if things go against him and then people start talking about the damage to the stock price,” said one major shareholder, who asked not to be named because of a company policy against speaking to the media. “It was effective.”

People close to the bank say a turning point in the campaign came from an unexpected source, an influential shareholder advisory firm, Institutional Shareholder Services, which urged shareholders earlier this month to withhold their votes from three directors on the board’s policy committee.

In a scathing 33-page report, the firm faulted three directors, saying they lacked risk expertise. By zeroing in on the board members, several people close to the bank said, the advisory firm effectively gave shareholders an alternative. They could register their dissatisfaction with JPMorgan without going after Mr. Dimon, the people said.

Indeed, the preliminary vote totals for the three directors were effectively rebukes. Ms. Futter received just 53 percent of the voting shares, while the two other directors on the committee did only a little better: James S. Crown received about 57 percent of the vote; and David M. Cote received 59 percent. (In comparison, Mr. Dimon received 98 percent of the vote for his board seat, while Mr. Raymond, the lead director, received 95 percent.)

As a result of this sign of disapproval from shareholders, it is almost certain the board will make some changes. On Tuesday, Mr. Raymond told shareholders to “stay tuned” when he was asked if the board is planning to make changes to the risk committee. It is likely Ms. Futter will come off the risk committee, and the board may replace her or others with directors that have more knowledge of financial risk.

“The vote proved to be a referendum on the board’s oversight of risk rather than over whether to split the chairman/C.E.O. job,” said Michael Garland, an assistant comptroller who heads corporate governance for the New York City comptroller, John Liu, which co-sponsored the bill. “I don’t think this is a setback because it put a spotlight on the issue and the clock is now ticking on director reform.”

DealBook: Berkshire Hathaway’s 2013 Shareholder Meeting

We’re back from lunch, and Mr. Kass leads off with a question about whether Mr. Buffett’s intensity has waned over the years. He specifically cites the weeks of work that Berkshire put into research American Express at the time of its first investment, versus the quick decision-making that went into its move into Bank of America. (Mr. Buffett famously hit upon the latter idea while in the bathtub.)

“Are you at the point now where the game interests you more than the score?” Mr. Kass asks.

Mr. Buffett responds that he still finds running Berkshire the most interesting thing he could possibly do.

“I have every bit of the intensity, though it’s not manifested in the same way,” he says. “I love thinking about Berkshire, about its investments, about its businesses. It’s a part of me.”

Mr. Munger interjects that Berkshire needed to do an enormous amount of analysis for its first investment in American Express, since the company was unfamiliar at the time. When it made a subsequent investment, Mr. Buffett had already amassed a wealth of knowledge.

“It was all cumulative,” Mr. Munger said.

Responding to a later question, Mr. Buffett comes back to the Bank of America decision. “The bathtub wasn’t the most important part,” he jokes.

Fair Game: A Shareholder Challenges an Occidental Petroleum Move

Or it was until mid-February, when a bit of boardroom weirdness erupted at Occidental Petroleum, the oil and gas exploration and production company based in Los Angeles and one of Mr. Romick’s holdings.

On Feb. 14, out of the blue, Occidental issued a terse, two-paragraph news release. In it, the company announced the creation of a search committee to identify possible successors for Stephen I. Chazen, the C.E.O. It was the first that shareholders had heard about replacing Mr. Chazen, and Mr. Romick said he felt that there was more to the story than Occidental stated.

Then a Wall Street Journal article pointed to boardroom intrigue at the company and suggested Mr. Chazen was being pushed out. Mr. Romick took action.

“I don’t disagree with the idea that there has to be better succession planning at the company,” Mr. Romick, 49, said last week, “but it was putting the wrong guy out to pasture.” The right guy, he contended, would have been Ray R. Irani, the executive chairman of Occidental’s board and its chief executive before Mr. Chazen for 21 years.

Dr. Irani, 78, has ignited controversy at Occidental before. When he was C.E.O., his rich compensation was criticized, and three years ago, 53 percent of Occidental shares voted at the annual meeting rejected the company’s pay policies. A group of shareholders also threatened to mount a proxy fight to oust four independent directors at the company. Afterward, in 2011, Dr. Irani stepped down as C.E.O., and Mr. Chazen took over.

The current plan is for Dr. Irani to retire altogether from the company in 2014. But when the board released its surprise succession statement regarding Mr. Chazen, some investors became concerned that removing him would allow Dr. Irani to postpone his exit. Trying to tamp down this speculation, the company in early April denied any boardroom strife and said Dr. Irani would retire next year, on schedule.

“This is not the time to ask Dr. Irani to step down,” said Dale Petroskey, a spokesman for Occidental. “He can help to ensure continuity and good execution during this period of transition.” He declined to make any board members available for comment.

Nevertheless, the boardroom imbroglio has drawn investor scrutiny to Occidental’s directors just ahead of its annual meeting on May 3 in Santa Monica, Calif. Under its bylaws, any board member who does not receive support from a majority of voted shares has to resign.

Mr. Romick is among the investors who say it’s about time that Occidental’s board is scrutinized. Its directors are among the most highly paid in corporate America: the nine current directors who served for all of 2012 received an average of $640,000 in annual compensation, most of it in stock.

Aziz D. Syriani, 71, is the lead independent director. The C.E.O. of the Olayan Group, a global trading, services and investment organization, he received stock and cash worth $879,000 last year as an Occidental director.

This year’s proxy statement says the board as a whole met five times in 2012. (The audit committee, which Mr. Syriani heads, met eight times.)

“There is no justification for what they earn,” Mr. Romick said. Moreover, the rich pay may induce directors to put managements’ interests ahead of shareholders’, he said.

Mr. Petroskey of Occidental disagrees. “Directors’ compensation is primarily based on an annual stock grant,” he said. “While the directors have not voted themselves an increase in the amount of shares awarded in the annual grant in more than a decade, the value of the grant has increased in recent years due to the very strong performance of Oxy stock.”

Then there is the lengthy tenure of Occidental’s directors — an average of 12 years. Mr. Syriani has served since 1983, which raises questions among some investors about whether his allegiances lie more with the company than with shareholders. As an April 7 research report by Deutsche Bank noted, under governance guidelines in Britain, such longevity would deem the Occidental board “not independent.”

Mr. Petroskey noted that the New York Stock Exchange, where the company’s shares trade, has no such measure of independence. “There are advantages to having a long-serving director with deep knowledge of the company and its operations,” he said. “The board is united under Mr. Syriani’s leadership on continuing to make the difficult but necessary decisions to move this company toward a strong future.”

Common Sense: Sham Shareholder Democracy

It turns out there are many stronger cases — 41.

That’s the number of publicly traded companies where directors actually lost their elections last year, meaning that more than 50 percent of the shareholders withheld their votes of approval. Yet despite these resounding votes of no confidence, they remained in their posts.

At least at H.P., all the directors got a majority of the votes cast, and even then, two resigned and a third gave up his post as chairman. But at Cablevision Systems Inc., the New York cable and media company controlled by the Dolan family, three directors lost shareholder elections twice in the last three years — in 2010 and 2012 — and received only tepid support in 2011. Nonetheless, the three remain on the board.

“As fiduciaries, we can’t sit by and let the board make a mockery of our fundamental right to elect directors,” said New York City’s comptroller, John Liu, who oversees the city’s pension funds, which own more than 532,000 Cablevision shares. “Shareowners need accountable directors who will ensure the company isn’t being run for the benefit of insiders at our expense.”

Mr. Liu sent the company a letter earlier this month urging it not to nominate the three again and threatening a proxy fight. “The fact that all three directors remain on the board suggests that one of the few rights” afforded shareholders is “illusory,” he wrote. Mr. Liu warned that he’d oppose their election and that “my office will also encourage other shareholders to join us.”

Mr. Liu didn’t get a response, but a Cablevision spokesman told me this week, without being specific, that Mr. Liu’s letter was “woefully misinformed, inaccurate and political.” In proxy materials released by Cablevision this week, all three directors — Thomas V. Reifenheiser, John R. Ryan and Vincent S. Tese — were renominated for new terms.

Even directors who resign after losing votes don’t necessarily leave. Two directors of Chesapeake Energy in Oklahoma, V. Burns Hargis, president of Oklahoma State University, and Richard K. Davidson, the former chief executive of Union Pacific, were opposed by more than 70 percent of the shareholders in 2012. Chesapeake requires directors receiving less than majority support to tender their resignations, which they did. The company said it would “review the resignations in due course.” (After a shareholder outcry, Mr. Davidson left a month after the vote, but and Mr. Hargis only left last month.)

At Iris International, a medical diagnostics company based in Chatsworth, Calif., shareholders rejected all nine directors in May 2011. In keeping with the company’s policy, they submitted their resignations. And then they voted not to accept them. The nine stayed on the board. (The company was acquired in late 2012 by the Danaher Corporation.)

A list of companies retaining directors who were rejected by shareholders in 2012 — so-called zombie directors — was compiled by the Council of Institutional Investors, which represents pension funds, endowments and other large investors. The list includes not just smaller, family-controlled companies, where disdain for shareholder views may be more ingrained, but also Loral Space & Communications, Mentor Graphics, Boston Beer Company, and Vornado Realty Trust.

“It’s appalling,” Nell Minow, a co-founder of GMI Ratings, which rates companies based on risk to shareholders, including corporate governance issues, told me this week. “It’s the No. 1 issue in corporate governance.” She noted that the reason such a thing is possible is that many companies operate under a “plurality” voting system, in which directors run unopposed and just one vote is enough to be elected. And even companies that require a majority vote may decline to accept a director’s resignation.

DealBook: Judge Sides With Einhorn and Halts an Apple Shareholder Vote

Eduardo Munoz/ReutersDavid Einhorn of Greenlight Capital argues that Apple violated securities regulations by bundling shareholder proposals.

9:26 p.m. | Updated

A federal judge on Friday ordered Apple to halt collecting shareholder votes on a contentious proposal to change some of its corporate charter, handing a victory to the hedge fund manager David Einhorn.

The ruling issued Friday touches on a fairly narrow legal point. But it signals a clear victory for Mr. Einhorn, who has taken up a fight with Apple over using some of the $137 billion in its corporate treasury to make additional payouts to shareholders.

Mr. Einhorn’s hedge fund firm, Greenlight Capital, has sued Apple in Federal District Court in Manhattan, arguing that the company improperly tied together several shareholder issues to be put for a vote into one proposal. Such bundling violated rules set by the Securities and Exchange Commission, lawyers for the hedge fund argued.

At the heart of the hedge fund’s complaint was that Apple combined a plan to eliminate its ability to issue preferred stock without shareholder approval with two other initiatives that Greenlight favored. By allowing the vote to proceed, lawyers for the firm argued, Greenlight was being forced to vote against its own interests.

The judge overseeing the case, Richard Sullivan, firmly agreed with that interpretation.

“Given the language and purpose of the rules, it is plain to the court that Proposal No. 2 impermissibly bundles ‘separate matters’ for shareholder consideration,” Judge Sullivan wrote in his order. The judge said at a hearing on Tuesday that he was leaning toward Mr. Einhorn’s point of view on the matter.

His ruling comes just days before the company’s shareholder meeting next Wednesday. It will also prevent Apple from accepting shareholder votes on Proposal No. 2, which had included Apple’s plans to eliminate its preferred shares. Some shareholder rights advocates have contended that preferred shares have been used as an anti-takeover tactic by boards and have pushed for their elimination.

Kevork Djansezian/Getty ImagesTim Cook, the chief of Apple.

Mr. Einhorn’s bigger goal has been to persuade Apple to return some of its billions sitting in cash to shareholders as a way to unlock the company’s value. Greenlight Capital has contended that the company has far more cash than it will ever need, and that preferred shares could provide additional payouts worth about $61 a share, while still leaving the company with an enormous war chest.

“We know they embrace innovation and can recognize it when they see it, even if it isn’t the kind of innovation people usually think of when they think of Apple,” Mr. Einhorn said in a conference call with analysts on Thursday.

Mr. Einhorn said that Apple should issue preferred shares, that would augment a stock dividend and buyback program that the company already has in place.

Although Apple was once the stock market darling for its meteoric rise, in recent months, share prices have sagged.

In a statement on Friday, Greenlight praised the judge’s ruling. “This is a significant win for all Apple shareholders and for good corporate governance,” the firm said. “We are pleased the court has recognized that Apple’s proxy is not compliant with the S.E.C.’s rules.”

Apple will now most likely have to break Proposal No. 2 into its separate elements and resubmit them to a vote.

“We are disappointed with the court’s ruling,” said Steve Dowling, a spokesman for Apple. “Proposal No. 2 is part of our efforts to further enhance corporate governance and serve our shareholders’ best interests. Unfortunately, due to today’s decision, shareholders will not be able to vote on Proposal No. 2 at our annual meeting next week.”

Apple had argued that the plan in its entirety was actually shareholder-friendly, and enjoyed the backing of prominent investors like the California Public Employees’ Retirement System.

Anne Simpson, the Calpers director of global governance, said in a statement: “We continue to support Apple in their efforts, and believe that the implementation of majority voting and shareholder approval for the issuance of new stock — preferred or otherwise — is worth waiting for.”

Ruling for Greenlight Capital in Battle With Apple