The three directors who oversee risk at JPMorgan Chase & Co.include a museum head who sat on American International GroupInc.'s governance committee in 2008, the grandson of a billionaireand the chief executive officer of a company that makes flightcontrols and work boots.

What the risk committee of the biggest U.S. lender lacks, andwhat the five next largest competitors have, are directors whoworked at a bank or as financial risk managers. The only memberwith any Wall Street experience, James Crown, hasn't been employedin the industry for more than 25 years.

“It seems hard to believe that this is good enough,” said AnatAdmati, a professor of finance at Stanford University who studiescorporate governance. “It's a massive task to watch the risk ofJPMorgan.”

The bank has been under siege since CEO Jamie Dimon said May 10that the firm's chief investment office suffered a $2 billion losstrading credit derivatives. He later called it “a Risk 101mistake.” Shares of the New York-based company have fallen 17percent since, and at least half a dozen agencies, including theU.S. Department of Justice and the Securities and ExchangeCommission, are investigating.

The probes began after traders in the London office, whichmanages the bank's excess cash, made wrong-way bets on illiquidcredit derivatives, some of them so large they distorted marketprices. Dimon transformed the division under Ina Drew, who resignedover the losses, from a sleepy haven for traders of U.S. Treasuriesinto a profit center with an increasing appetite for exoticwagers.

Crown, 58, who is president of Chicago-based Henry Crown &Co. and lead director of defense contractor General Dynamics Corp.,sits on the risk committee with Ellen Futter and David Cote.Futter, 62, is president of the American Museum of Natural Historyin New York, and Cote, 59, is CEO of Honeywell InternationalInc.

The committee, which met seven times last year and hasn'tchanged its composition since 2008, approves the bank's risk-appetite policy and oversees the chief risk officer, according tothe company's April 4 proxy statement.

JPMorgan, with $1.13 trillion of deposits, is the only one ofthe six largest U.S. lenders that doesn't have a former banker,regulator or finance professor on its risk committee.

Banking Experience

Susan Bies, who served as a Federal Reserve governor for sixyears and risk manager at First Horizon National Corp., sits onBank of America Corp.'s panel. Morgan Stanley's includes MasaakiTanaka, CEO for the Americas at Bank of Tokyo-Mitsubishi UFJ Ltd.,while Robert Joss, a former U.S. Treasury Department official whoran Westpac Banking Corp., is on Citigroup Inc.'s. Nicholas Moore,a former PricewaterhouseCoopers LLP chairman and CEO of its U.S.unit, is one of six directors on Wells Fargo & Co.'s riskcommittee.

Only Bank of America's risk committee is as small as JPMorgan's.Goldman Sachs's has eight members, including Stephen Friedman, aformer chairman of the firm who advised President George W. Bush oneconomic policy, and James Schiro, a former CEO of Zurich FinancialServices AG.

Futter, a former president of Barnard College in New York,joined the JPMorgan board in 1997. Her re-election this year wasopposed by Washington-based investor group Change to Win andshareholder advocate Glass Lewis & Co. over her previousexperience on the boards of AIG and Bristol-Myers Squibb Co.

Futter headed the audit committee of Bristol-Myers, a NewYork-based drugmaker, during an accounting scandal that began in1999 and that the company settled for $300 million to avoidcriminal prosecution. She also served on AIG's compliance andgovernance committees, resigning in July 2008 before the insurertook a $182.3 billion bailout from the U.S. government.

“Given Ms. Futter's inability to effectively monitor credit riskduring her tenure at AIG, and the company's similar level ofinvolvement in the same markets, we do not believe her continuedservice on the company's board is in shareholders' interest,” JackFerdon and Courteney Keatinge, analysts at Glass Lewis, wrote in anApril 24 report recommending that JPMorgan stockholders voteagainst her.

JPMorgan cited Futter's experience as a director of the FederalReserve Bank of New York from 1988 to 1993, a non- supervisoryposition, in supporting her nomination. She won 86 percent of thevotes, the lowest of any board member.

Museum Donations

Futter was criticized in newspapers and industry publicationsafter she joined AIG's board for accepting a $36.5 million donationfor the museum from a charity run by then-CEO Maurice “Hank”Greenberg.

JPMorgan is a corporate sponsor of the museum and gave $1.5million for an exhibit about water, according to the organization's2008 annual report. Dimon's family foundation donated $25,000 in2009, according to tax filings.

Kristin Lemkau, a spokeswoman for the bank, wouldn't say howmuch JPMorgan or Dimon has donated to the museum, except that thegifts are less than 2 percent of the organization's annual revenue,the limit set by the New York Stock Exchange for donations tocharities that directors help manage.

The board reviewed the bank's charitable donations anddetermined that “none of them create a material relationship” thatwould impede the independence or judgment of its directors,according to company disclosures.

Futter has received personal loans from JPMorgan, according tothe company's proxy statement, and was awarded $245,000 in cash andstock for her work on the board last year. The bank didn't disclosethe amount of the loans. Futter didn't return phone and e-mailmessages seeking comment.

Crown, who heads the risk committee, helps manage his family'sprivately owned Chicago-based investment firm. His grandfather,Henry Crown, amassed a fortune in hotels, railroads and meatpackingand once owned a stake in the Empire State Building. The familyowns about 3.7 percent of Falls Church, Virginia-based GeneralDynamics, the maker of Abrams tanks and Gulfstream jets, accordingto March filings.

The younger Crown, who worked at bond-trading firm SalomonBrothers Inc. for five years until 1985, was a member of the searchcommittee that chose Dimon to head Bank One Corp., acquired byJPMorgan in 2004. Dimon and Crown's father, Lester, are overseersof the Harvard Business School Club of Chicago.

“I really value the risk attitude when you're looking at a hugefortune that you're responsible for,” said John H. Biggs, whoserved on JPMorgan's board from 2003 to 2007. “You tend to beshareholder-oriented, very risk-averse.”

Crown's risk-management experience comes from his directorshipsat General Dynamics and sausage maker Sara Lee Corp. and hisposition at his family's investment firm, according to bankfilings. Crown, who was awarded $300,000 for his board work lastyear, didn't return calls to his office and home in Chicago.

Honeywell Loans

Cote, who joined JPMorgan's board in 2007, has been chairman andCEO of Morris Township, New Jersey-based Honeywell since 2002.Shares of the company, which sells products from thermostats forhomes to cockpit controls for airplanes, have gained 75 percentsince Cote became CEO.

Honeywell has received loans and financial advisory servicesfrom JPMorgan, according to securities filings. The bank said itpurchased building safety, security equipment and maintenanceservices from Honeywell, all of which were consideredimmaterial.

Rob Ferris, a spokesman for Cote at Honeywell, referred callsfor comment to JPMorgan. Lemkau, the bank spokeswoman, said all ofthe company's directors have “extensive experience in managing oroverseeing large organizations with complex financial needs andregulation.”

JPMorgan elected former KPMG International Chairman TimothyFlynn to the board on May 15. He hasn't been appointed to acommittee yet.

Richard Clayton III, research director at Washington-basedinvestor group Change to Win, which advises union pension fundsthat control about 6 million JPMorgan shares, said the riskcommittee doesn't have the depth of experience necessary for such acomplex company.

“There's nothing about their professional track record, nothingabout their personal experience that suggests that they would haveknown the right questions to ask the chief risk officer that wouldhave eliminated any of the potential dangers involved in thistrading strategy,” said Clayton, whose group opposed Futter forre-election to the board this year.

Crown and Cote “at best appear to be of limited utility infulfilling the committee's critical mandate,” the group wrote in anApril 2011 letter to David Novak, who headed the bank's corporategovernance and nominating committee at the time and has sincestepped down.

'Very Naive'

Biggs, the former director, said the role of the risk committeeis to oversee the bank, not to watch specific trades.

“Most people have a very naive view of what the role of theboard is,” said Biggs. “Even if the governance is absolutely right,it is a complex world out there.”

Biggs, 76, is a former chairman and CEO of TIAA-CREF, whichmanages retirement accounts for teachers. “Blame the auditors,” hesaid. “Why didn't the auditors catch this? Why didn't theregulators?”

Another former director, John Kessler, chairman of real estatedeveloper New Albany Co., who left the board in 2006, said he wasglad he avoided being on the risk committee, whose work hedescribed as time-consuming.

“Thank God,” Kessler said.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.