Bank of America will allow shareholders to vote on its decision last year to combine the CEO and chairman titles, bowing to pressure from investors who want a say in the matter.
The move announced Monday is a surprising reversal for the Charlotte bank, which only weeks ago defended handing the chairman’s title to CEO Brian Moynihan last fall. That decision came five years after shareholders voted to change the bank’s bylaws in order to split the two posts, a rare victory for investors.
“It’s a positive development that they have seen the error of their ways and are going back to the shareholders,” said Anne Sheehan, director of corporate governance for the California State Teachers’ Retirement System, which owns 28 million of the bank’s shares. “That should have been done in the first place, but better late than never.”
Monday’s announcement came two days before Wednesday’s annual shareholder meeting in Charlotte and after two prominent proxy advisory firms urged the bank’s investors to vote against some of the directors involved in the chairman decision.
It is unclear when the vote will take place, but the bank said it expects it to occur no later than its 2016 shareholders meeting. Bank of America spokesman Lawrence Grayson said there is not enough time to bring the item before shareholders for this year’s annual meeting, scheduled to take place in the SouthPark area.
In a letter to shareholders Monday, the bank said it made the decision after “a number” of investors “expressed the view that stockholders should have been given the opportunity to vote to ratify the board’s bylaw change.”
The flip-flop marks the latest miscue for the bank under Moynihan, who became CEO in 2010. In his tenure, the bank has scrapped a controversial debit card fee after customer backlash and struggled to pass Federal Reserve stress tests, even as the company made strides in resolving financial crisis-era lawsuits and cutting expenses.
“I am hopeful that the board woke up and realized that the wishes of their shareholders do indeed matter,” independent bank analyst Nancy Bush said Monday. Bank of America “desperately needs to change its image as being accident-prone and slow to react,” she said. “Perhaps this will be a good start.”
Moynihan, 55, is Bank of America’s first CEO to serve as chairman since Ken Lewis was stripped of the title in 2009. That year, the bank’s stockholders voted to separate the roles amid the fallout from the bank’s purchase of Merrill Lynch, which the lender acquired under Lewis’ watch.
The California State Teachers’ Retirement System, or CalSTRS, voiced its concern in a conference call with directors soon after the board decided last fall to recombine the CEO and chairman roles, said Sheehan, the corporate governance director.
“Legally, they have the right to do what they did,” Sheehan said. “However, in light of the fact that this was such an unprecedented result in 2009, it was only fitting that they go back to their shareholders to change that result out of respect to their shareholders.”
CalSTRS decided not to submit a shareholder proposal on the issue after the bank on its own adopted a measure that allows shareholders to nominate their own directors. The pension fund remains opposed, however, to combining the CEO and chairman roles, Sheehan said.
The pension fund has voted for all of the bank’s directors this year except Arnold Donald, CEO of the Carnival cruise company, because he sits on three boards, which CalSTRS said is too many.
Jonathan Finger, partner with Houston-based Finger Interests, which owns about 900,000 Bank of America shares, said he is disappointed that the bank’s board “took unilateral action” to combine the positions. But, he said, “it is good to see that the board is being responsive to shareholders and allowing them to essentially ratify the board's action.”
In recent weeks, proxy advisory firms Institutional Shareholder Services and Glass, Lewis & Co. have urged the lender’s shareholders to vote against some of its directors over the re-combination of the chairman and CEO roles.
Glass, Lewis on Monday said it was sticking with its recommendation to oppose the re-election of Thomas May, chairman of Bank of America’s corporate governance committee. Robert McCormick, the firm’s chief policy officer, said the bank’s decision to grant a shareholder vote could make investors more likely to vote for May.
Institutional Shareholder Services said Monday it is still recommending shareholders vote against May and the other three directors who serve on the bank’s corporate governance committee.
In its initial report to shareholders recommending the vote against the directors, ISS said it asked the bank if it tried to talk to shareholders before changing its bylaws. The bank said it didn’t, citing a desire to avoid media attention, the ISS report says.
Moynihan was named chairman after Chad Holliday Jr. stepped down to take the same role at Royal Dutch Shell. At the same time, the bank created a lead independent director.
The bank, in its March proxy filing, defended recombining the positions, pointing out that the 2009 shareholder vote took place in a different era, when the bank was reeling from the financial crisis. In that vote, 50.3 percent of shareholders who voted supported splitting the roles.
Some corporate governance experts argue for splitting the roles, saying it provides an independent check on management. In its proxy filing, Bank of America cites data that it says doesn’t prove any link between an independent chair and “superior corporate governance or performance.”
Michael Jacobs, a finance professor at UNC-Chapel Hill’s Kenan-Flagler business school, said he expects Bank of America to wait until its 2016 shareholder meeting to let shareholders vote. The bank could hold a special meeting before then, he said, but that “brings greater attention” to the issue.
“They probably realized they made a mistake and were tone deaf to the shareholders and are trying to make up for the mistake in the way that brings the least amount of attention to it.” Staff writer Rick Rothacker contributed.
Bank of America miscues
Here are some high-profile missteps since Brian Moynihan became CEO in 2010:
2010: When asked about mounting investor requests to buy back soured mortgages, Moynihan pledges “hand-to-hand combat.” Ultimately, the bank paid tens of billions of dollars to settle repurchase requests, government investigations and lawsuits over these mortgages.
2011: Just weeks after Moynihan is bullish on plans for a “modest” dividend increase, the Federal Reserve rejects the request.
After customer backlash, Bank of America reverses course and drops plan to charge a $5 per-month debit card fee.
2014: Bank of America suspends a long-awaited dividend increase after miscalculating its capital ratios.
2015: The Fed says Bank of America must address “deficiencies” and “weaknesses” in its capital planning process.
Monday: Bank of America says it will hold a shareholder vote on combining the chairman and CEO roles after initially taking the step on its own. Rick Rothacker