The nation’s two biggest public pension funds say they will vote against Bank of America’s move last year that made CEO Brian Moynihan chairman, just three weeks before shareholders are set to vote on the decision in Charlotte.
In a letter sent to the Charlotte-based bank on Monday, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System cited various “missteps” that have occurred since Moynihan became CEO in 2010. As a result, “Bank of America needs stronger, more independent oversight, not less,” the pension funds say in their letter.
The pension funds’ letter is the latest example of opposition to a bylaws change the lender’s board made Oct. 1 that eliminated a requirement that the bank’s chairman be independent. The board didn’t seek input from investors before making that move, which undid a 2009 shareholder vote that split the chairman and CEO roles. Investors will vote on the bylaws change at a Sept. 22 shareholders meeting.
Last week, CtW Investment Group, a Washington, D.C.-based advocate for pension funds affiliated with labor unions, issued a letter urging shareholders to vote against the move to combine the roles. In the letter, CtW said Bank of America remains a “deeply challenged banking franchise” and that the lender took “a big step backwards in corporate governance” by getting rid of its independent chairman.
On Tuesday, Bank of America spokesman Lawrence Grayson said the lender’s board “recognizes that stockholders hold varying views on this matter, which is why the board committed to putting it to a vote.”
“The board believes that having the same flexibility on board leadership that 97 percent of the S&P 500 now have, while still providing strong independent oversight, is in the best interest of stockholders,” Grayson said. “No company has dug out of a deeper hole since the financial crisis, turned back to health with solid earnings, and accumulated record levels of capital and liquidity – all to the benefit of our shareholders.”
Moynihan, speaking Tuesday evening at an arts event at Bank of America Corporate Center’s Founders Hall, did not allude to the issue, and the bank did not make him available for an interview.
The California pension funds began expressing their disappointment with the bank’s Oct. 1 decision last year, chiding the lender for unilaterally rolling back the 2009 vote without giving shareholders a say.
In May, Bank of America announced plans to schedule a shareholder vote on the matter. That decision came two days before the bank’s annual shareholder meeting and after two proxy advisory firms had recommended investors vote against some of the bank’s directors over the chairman decision. The directors were all re-elected.
In their letter Monday, the pension funds said the roles of CEO and chairman “have inherent conflicts which require the two posts to be separate and independent.”
Since Moynihan became CEO, “the company has continued to underperform,” the letter says, pointing to Bank of America’s share price not rising as much as its big-bank peers’ over the five-year period. The letter also cites missteps such as a $4 billion miscalculation of capital ratios that the bank disclosed in 2014.
Bank of America has previously pointed out that the 2009 vote to split the chairman and CEO roles was “very close,” with 50.3 percent in favor. The bank has also noted that the vote took place during a different era, when the bank had just purchased Countrywide Financial Corp. and Merrill Lynch, deals that shareholders questioned.
Combined, the California pension funds own 63.6 million Bank of America shares worth about $1 billion, less than 1 percent of the bank’s total outstanding shares.
Analysts said Tuesday the pension funds’ stance could have a limited influence on how other shareholders vote.
“I don’t think they’re overly influential,” said independent bank analyst Nancy Bush. “They’re not massive shareholders.”
Shareholders might be more influenced by proxy advisers Glass Lewis & Co. and Institutional Shareholder Services, which are expected to release their recommendations later this month on how Bank of America shareholders should vote Sept. 22.
Marty Mosby, an analyst with Tennessee-based Vining Sparks, said most large investors use their own internal criteria, such as profitability metrics and companies’ approaches to corporate governance, when determining how to vote on proposals at shareholder meetings.
But the California pension funds’ letter does put more pressure on Bank of America to make sure smaller investors get out their vote, Mosby said. Small investors typically vote in line with companies’ recommendations.
“It creates a much heavier effort on management to touch base with investors,” he said. “It is a lot of extra work.”