2. Board composition
2.1 Size and composition of the Board
The By-laws provide that the size of the Board shall be determined from time to time by resolution adopted by the Board. The preference is to maintain a smaller Board for the sake of efficiency. A substantial majority of directors will be independent directors under the New York Stock Exchange's independence standards.
2.2 Definition of independence
Independence determinations. The Board may determine a director to be independent if the Board has affirmatively determined that the director has no material relationship with the Firm, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Firm. Independence determinations will be made on an annual basis at the time the Board approves director nominees for inclusion in the proxy statement and, if a director joins the Board between annual meetings, at such time. Each director shall notify the Board of any change in circumstances that may put his or her independence as defined in these Corporate Governance Principles at issue. If so notified, the Board will reevaluate, as promptly as practicable thereafter, such director's independence. For these purposes, a director will not be deemed independent if:
(i) the director is, or has been within the last three years, an employee of the Firm or an immediate family member of the director is, or has been within the last three years, an executive officer of the Firm; (ii) the director or an immediate family member of the director has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from the Firm, other than (a) director and committee fees and pension or other deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service) and (b) compensation received by a family member for service as a non-executive employee of the Firm; (iii) the director is a current partner or employee of the Firm's independent registered public accounting firm, an immediate family member of the director is a current partner of such accounting firm or a current employee of such accounting firm who personally works on the Firm's audit, or the director or an immediate family member of the director was within the last three years (but is no longer) a partner or employee of such accounting firm and personally worked on the Firm's audit within that time; or (iv) the director or an immediate family member of the director is, or has been within the last three years, employed as an executive officer of a company in which a present executive officer of the Firm at the same time serves or served on the compensation committee of that company's board of directors.
An "immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.
Relationship to an entity. The relationship between the Firm and an entity will be considered in determining director independence where a director serves as an officer of the entity or, in the case of a for-profit entity, where the director is a general partner of or owns more than 5% of the entity. Such relationships will not be deemed relevant to the independence of a director who is a non-management director or a retired officer of the entity unless the Board determines otherwise.
Where a director is an officer of an entity that is a client of the Firm, whether as borrower, trading counterparty or otherwise, the financial relationship between the Firm and the entity will not be deemed material to a director's independence if the relationship was entered into in the ordinary course of business of the Firm and on terms substantially similar to those that would be offered to comparable counterparties in similar circumstances.
A director who is an employee, or whose immediate family member is an executive officer, of another company that makes payments to or receives payments from the Firm for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company's consolidated gross revenues will not be deemed independent until three years after falling below such threshold.
For these purposes, payments exclude loans and repayments of principal on loans, payments arising from investments by the entity in the Firm's securities or the Firm in the entity's securities, and payments from trading and other similar financial relationships.
Where a director is a partner or associate of, or Of Counsel to, a law firm that provides services to the Firm, the relationship will not be deemed material if neither the director nor an immediate family member of the director provides such services to the Firm and the payments from the Firm do not exceed the greater of $1 million or 2% of the law firm's consolidated gross revenues in each of the past three years.
Not-for-profit entities. The Firm encourages contributions by employees to not-for-profit entities and matches such contributions by eligible employees to eligible institutions within certain limits by grants made by the Firm (directly or through The JPMorgan Chase Foundation). The Firm also supports not-for-profit entities through grants and other support unrelated to the Matching Gift Program. Where a director is an officer of a not-for-profit entity, contributions by the Firm will not be deemed material if, excluding matching funds from the Firm, they do not exceed the greater of $1 million or 2% of the not-for-profit entity's consolidated gross revenues.
Banking and other financial services. The Firm provides banking services, extensions of credit and other financial services in the ordinary course of its business. The Sarbanes-Oxley Act prohibits loans to directors, as well as executive officers, except certain loans in the ordinary course of business and loans by an insured depository institution subject to Regulation O of the Board of Governors of the Federal Reserve System. Any loans to directors are made pursuant to applicable law, including the Sarbanes-Oxley Act and Regulation O. Regulation O also applies to banking relationships with certain family members of a director and to entities owned or controlled by a director. All such relationships that are in the ordinary course of business will not be deemed material for director independence determinations unless a director has an extension of credit that is on a non-accrual basis. Where a subsidiary of the Firm is an underwriter in an initial public offering, the Firm will not allocate any of such shares to directors.
2.3 Former officer-directors
As a general rule, an officer-director may not serve on the Board beyond the date he or she retires or resigns as a full-time officer.
2.4 Change of job responsibility
A director will offer his or her resignation following the loss of principal occupation other than through normal retirement. Directors will provide prior notice in writing to the Corporate Governance & Nominating Committee of any change in their occupation or any proposed service on the board of a public or private company or any governmental position.
2.5 Director tenure
The Board does not believe it appropriate to institute fixed limits on the tenure of directors because the Firm and the Board would thereby be deprived of experience and knowledge.
2.6 Retirement age
A non-management director will offer not to stand for re-election -- such offer to be communicated to the Board Chair (or, in the case of an offer by the Chair, by communication to the Chair of the Corporate Governance & Nominating Committee) no later than three months prior to the Annual Meeting -- in each calendar year following a year in which the director will be age 75 or older. The Chair (or, as the case may be, the Chair of the Corporate Governance & Nominating Committee) will refer the offer to the Corporate Governance & Nominating Committee for review. The Corporate Governance & Nominating Committee will make a recommendation to the Board for its consideration, and the Board will determine whether or not to accept the offer. (The director making the offer will not participate in the Corporate Governance & Nominating Committee or Board deliberations.)
The Board recognizes that there have been dramatic increases in average life expectancy and retirement age in the United States and elsewhere over the last several decades, and that with age often comes unmatched wisdom, experience and judgment. Accordingly, the Board believes that directors may make very meaningful contributions to the Board and the Firm well beyond age 75 and expects that it will in many cases determine to reject offers from directors age 75 or older not to stand for re-election. Indeed, it is the Board’s strong view that, while Board refreshment is an important consideration in the Board’s assessment of its composition, the best interests of the Firm are served by its being able to take advantage of all available talent, and that the Board should not make determinations with regard to its membership solely on the basis of age.
2.7 Limits on board and audit committee memberships
Each person serving as a director must devote the time and attention necessary to fulfill the obligations of a director. Key obligations include appropriate attendance at Board and committee meetings and appropriate review of preparatory material. Directors are also expected to attend the annual meeting of shareholders. Unless the Board determines that the carrying out of a director's responsibilities to the Firm will not be adversely affected by the director's other directorships: an officer-director will not serve on the board of more than two other public companies; directors who also serve as chief executive officers will not serve on more than a total of two public company boards in addition to the company of which they are CEO and the Firm; and directors who are not chief executive officers will not serve on more than four public company boards in addition to the Firm.
If a member of the Audit Committee wishes to serve on the audit committees of more than a total of three public companies, the Board must approve such additional service before the director accepts the additional position.
2.8 Majority voting for directors
The By-laws provide for majority voting for directors in non-contested elections. The vote required for election of a director by the stockholders shall, except in a contested election, be the affirmative vote of a majority of the votes cast in the election of a nominee at a meeting of stockholders. For this purpose, a "majority of the votes cast" shall mean that the number of votes cast "for" a director's election exceeds the number of votes cast "against" that director's election, with "abstentions" and "broker nonvotes" (or other shares of stock of the Firm similarly not entitled to vote on such election) not counted as votes cast either "for" or "against" that director's election.
In a contested election, directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares present in person or by proxy at the meeting and entitled to vote in the election. An election shall be considered contested if there are more nominees for election than positions on the board of directors to be filled by election at the meeting.
In any non-contested election of directors, any incumbent director nominee who receives a greater number of votes cast against his or her election than in favor of his or her election shall immediately tender his or her resignation, and the Board of Directors shall decide, through a process managed by the Corporate Governance & Nominating Committee, whether to accept the resignation at its next regularly scheduled Board meeting held not less than 45 days after such election. The Board's explanation of its decision shall be promptly disclosed through a public statement.
2.9 Information provided by directors
Every director, in connection with his or her election or reelection as a director, is required to provide documents and information with respect to the director to the Firm, including completion of the Firm’s annual director questionnaire and other documents and information as the Firm may reasonably request (as determined by the Firm in its sole discretion) (“Information”). If the Board determines that any director (a) provided Information with respect to the director to the Firm that was untrue in any material respect or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (b) committed a material violation or breach of any agreement, representation or warranty of such director; such director shall immediately tender his or her resignation, and the Board of Directors shall decide, through a process managed by the Corporate Governance & Nominating Committee, whether to accept the resignation.
2.10 Stock ownership requirements
It is generally desirable for non-executive directors to own a significant number of shares or share equivalents of the Firm’s stock, and for new directors to work toward that goal. All non-employee directors are required to own at least 3,000 shares of Common Stock or vested RSUs at all times during their tenure, with a transition period of one year for new directors. Directors also agree that for as long as they serve as directors of the Firm, they will retain all shares of the Firm's common stock purchased on the open market or received pursuant to their service as a Board member. Shares held personally by a director may not be held in margin accounts or otherwise pledged as collateral nor may the economic risk of such shares be hedged. Any exceptions to the foregoing shall be discussed with the Corporate Governance & Nominating Committee.