FORTUNE -- What rational person wouldn't have recoiled when it was announced last week that JPMorgan's CEO Jamie Dimon was awarded $20 million in 2013 pay? I write "awarded" because, by all rights, Dimon has earned the boot.
What was the board thinking? That for every thousand dollars a company pays out in penalties (in this case around $20 billion) they should kick back a dollar to the CEO who helped make it possible?
If Dimon were a bigger man, he would have turned the 74% pay increase down. If Lee Raymond, lead director and chair of JPMorgan's compensation committee, were a bigger man, he would never have offered it in the first place. But this isn't the first time Raymond has kowtowed to Dimon's ego.
Dimon himself admitted in an interview with CNBC last week that the $20 billion-plus that the company shelled out was related to "litigation that kind of built up over time … and this is a huge negative for the company." In other words, the warning signs were years in the making, but no one said, "stop."
JPMorgan (JPM) seems to be experiencing "a remarkable disconnect from reality," Bob Monks, co-author of Trusting Harvard: The Cost of Unprincipled Investing, told me. JPMorgan's managing director of corporate communications, Mark Kornblau, says that the bank has no comment beyond their Jan. 24 SEC filing.
Indeed, what can be said? Some deeds are so astonishing they leave us speechless.
For now, the banking behemoth appears to be stuck in a never-ending loop of the board's making. Certainly, Laban Jackson, head of JPMorgan's audit committee, offers little hope that the board has learned from the London Whale trading debacle or the bank's other escapades. A September 2013 SEC cease and desist order found that senior management on multiple occasions failed to inform the board's audit committee about the Whale as they should have. That's a negative reflection on both the board and management for failures to adequately inquire and communicate. A March 2013 Senate report included multiple disclosure allegations against Dimon and found that the CEO "was already in possession of" information on the growing losses and risks of the portfolio when he made the statement that news reports about the Whale were "a complete tempest in a teapot."
Yet, despite the evidence, at a director's conference in Maryland three months ago, Jackson remarked, "on a call Jamie says it's a tempest in a teapot, which is … what we believed, and that's what he believed at the time."
Culture broke down in only one small area, he said. Jackson was silent on senior management's failure to disclose known internal control issues to him prior to the first quarter 2012 filing, which had to be restated. Jackson said, "Having communications with Jamie is the least of our problems ... you can trust what you are hearing as a board." Regarding the board's investigation into the London Whale, Raymond gave us the mission "to get the reputation of JPMorgan back," Jackson said. Perhaps a better mission would have been to face the facts and fix the way in which the board and management interact.
With some shareholder urging, Ellen Futter and Dave Cote deserve praise for resigning from the board last year. Perhaps James Crown, who heads the board's risk committee, is now wishing he'd joined them.
Led by Raymond, who is 75, JPMorgan's board continues to fail to meet their own corporate governance guidelines: "effectiveness and willingness to appropriately challenge management." Perhaps you may quibble and say it all depends on what you mean by "appropriately" -- or whether "willingness" means you have to challenge the CEO every once in a while. Appointing Linda Baumann, Dimon's former employee, to the board certainly reeks of tone-deafness. The board could easily have identified a qualified candidate who didn't have ties to Dimon, someone with risk management experience, but not under Dimon's sway. Raymond's retention long past the board's own suggested retirement age of 72 is just another example of the board's failure to self-manage.
Will newly appointed board member Mike Neal, former GE vice-chair, knock some sense into his colleagues? With Dimon's payday, he may be witnessing a moment similar to one he saw play out at his former employer a decade ago. I'm referring to former GE (GE) CEO Jack Welch's divorce case, which revealed the dark underbelly of CEO overcompensation and perks, and led eventually to new rules requiring greater transparency in CEO and executive pay. As a 2002 Wall Street Journal article put it, "the result [of the Welch divorce case] is not only the sullying of [Welch's] own reputation ... The case also threatens to keep the image problems of the CEO class before the public."
Perhaps this moment will imprint in the public psyche images of $20 billion going up in flames while a CEO dances with $20 million in his hands. Maybe JPMorgan will become a test case that will stir other boards -- and shareholders, regulators, and the public -- to ask, "How can we make sure this never happens again?"
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board education and advisory firm.
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