Too Big to Retire? Wall Street CEOs Keep Next Generation Waiting

January, 2020

In the Media

Jamie Dimon just led JPMorgan Chase & Co. to the best year of any U.S. financial institution in history. Brian Moynihan steered Bank of America Corp. from the brink of ruin to years of profitability. With James Gorman at Morgan Stanley and Michael Corbat at Citigroup Inc., hard times have faded in memory.

These Wall Street captains have all been around awhile — 14, 10, 10 and seven years, respectively. That makes them warhorses compared with the typical American chief executive officer, whose median tenure at big companies is 4.8 years, according to Equilar Inc.

Some industry experts are saying the steady hands that were needed to bring stability after the 2008 financial crisis could be keeping too firm a grip on power. And that may be holding back the next generation of executives.

“There’s a vacuum,” said Jeanne Branthover, who recruits financial executives for headhunting firm DHR International. While banks have improved their contingency plans for sudden death or illness, possible long-term successors remain unprepared and probably won’t be ready for at least two to four years, she said.

Corporate boards prepare for succession behind closed doors. While they rarely specify the names on the shortlist, observers are on the lookout for clues, in promotions or departures, to gauge whose star is rising.

To be fair, when it comes to picking the head of a major bank, it’s difficult to find candidates who tick all the boxes.

“You can be worried as hell, but you always have to be calm,” Moynihan, 60, said about the qualities he values in a CEO. “You can’t flinch when something goes wrong. You have to go fix it, deal with it.”

The right person needs a cornucopia of skills, including but not limited to well-rounded experience, a track record of making money, leadership savvy and credibility in the wider world. They also need to navigate the political shoals that can shipwreck the best candidates in any competitive corporate environment.

That explains why it took Wells Fargo & Co. almost six months to tap onetime Dimon protégé Charlie Scharf, or why well-established bosses stay on for so long at other banks.

Have Patience

So add that rarest of attributes – patience – to the list of qualities candidates must exhibit. The balancing act is playing out across the industry. As recently as last week, Dimon, 63, quipped that he’d like to stay on another five years – the same joke he’s told since at least 2014. That might prove to be a long wait for executives JPMorgan is grooming to succeed Dimon.  They include Co-Presidents Daniel Pinto and Gordon Smith, CEO of consumer lending Marianne Lake and Chief Financial Officer Jennifer Piepszak.

JPMorgan has been called a CEO factory because of its deep bench, and also due to some rising executives opting to leave to run other firms rather than wait for Dimon’s perpetual five more years to elapse, said Mike Mayo, an analyst at Wells Fargo. Dimon’s outsized stature at the firm poses a “key-man risk,” Mayo said.

Citigroup may be the first major U.S. bank to appoint a woman CEO. It named Jane Fraser to the No.2 job in October, putting her in position to potentially succeed 59-year-old Corbat.

“My job and my responsibility is to make sure that we’re preparing people,” Corbat told Bloomberg TV Tuesday. “Jane has had a phenomenal career with us, and we continue that role of making sure that if and when the time comes, she’s ready.”

Moynihan and Gorman have both said in recent months that they’re happy in their jobs and will stay as long as their board sees fit.

“I want to develop a team to replace me,” Gorman told CNBC in December. “I have no desire to be here when I’m 70 years old. I’m 61.”

‘Nice Start’

Morgan Stanley investment bank chief, Ted Pick, investment management head Dan Simkowitz, Chief Financial Officer Jonathan Pruzan and wealth-management boss Andy Saperstein are widely seen as the strongest contenders to succeed Gorman in running the world’s biggest stock-trading firm.

Moynihan said that his 10 years at Bank of America is a “nice start”. He took over a bank in chaos and said he wanted to avoid a similar tumult when he ultimately steps down.

Industry observers say Moynihan’s public profile far exceeds that of Bank of America’s other executives. Even so, Chief Operations and Technology Officer Cathy Bessant and Dean Athanasia, who runs the consumer and small business unit, were floated as potential top-job candidates during Wells Fargo’s CEO search.

In Canada, the chiefs of lenders including Royal Bank of Canada and Toronto-Dominion Bank were promoted into key roles before their predecessor’s departures, which were telegraphed months in advance.

Year of Jockeying

Bank boards can look to Goldman Sachs Group Inc. as an example of a recent handover. Following a year of jockeying and speculation, David Solomon won a bake-off with fellow co-president Harvey Schwartz to take the reins from Lloyd Blankfein in late 2018.

Blankfein, who came up through Goldman’s trading business, summed up the dilemma that bank bosses face. “When times are tougher, you can’t leave,” he wrote in a July 2018 note to staff. “And, when times are better, you don’t want to leave.”

Perhaps it’s also hard to walk away from the annual compensation, which ranges from $23 million to $31 million for the CEOs of the six biggest banks. There’s also the issue of what to do next. Blankfein’s Twitter bio says he’s a “former CEO on a gap year.” His predecessor, Henry Paulson, left the job to take what some people joked was a demotion, to U.S. Treasury secretary.

As the crisis recedes further into history, the next generation of leaders will have to adapt to the digital age. New technology will enable banks to save billions of dollars through automation, while threatening to eliminate their workforce in droves.

“We’re talking about some of the biggest and most complex banks in the world,” said Christopher Wolfe, head of North American banks coverage at Fitch Ratings Inc. “The list of people we think would be suitable to run them is going to be short.”

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