If Bank of America’s biggest shareholders are any indication, Chief Executive Officer Brian Moynihan probably will be allowed to remain chairman.
BlackRock Inc., Vanguard Group Inc. and other institutions among the bank’s 10 largest shareholders typically side with management in keeping the top roles combined, according to their public proxy guidelines. Bank of America is holding a Sept. 22 vote in Charlotte to ratify a 2014 bylaw change that gave Moynihan both titles.
“Bank of America ultimately prevails because when the largest shareholders look at the issue, they will likely conclude that the very real risk of disruption from separating the roles is not worth the theoretical benefits that may come,” said Avrohom Kess, a Simpson Thacher & Bartlett LLP partner and head of the law firm’s public-company advisory practice.
Proxy advisers and activist investors are pushing to split Moynihan’s roles to enlist more independent oversight as the stock performs worse than peers. While the two biggest U.S. pension funds have said they’ll vote against the bank’s proposal to keep the roles merged, their stakes are dwarfed by asset managers such as BlackRock, which held 5.5 percent of the stock at the end of June, according to data compiled by Bloomberg.
“It’s a tough battle for anyone who thinks this should be declined,” said Mike Mayo, a CLSA Ltd. analyst and an outspoken critic of Bank of America. “The big funds generally think a combined CEO-chairman is fine. I’d say this is an exception to the rule, given the poor oversight at Bank of America’s board.”
The special vote was called after the Charlotte-based lender angered some investors by undoing a 2009 shareholder-backed bylaw that requires an independent chairman. The decision to rewrite that rule, made in October without consulting investors, shows the board needs better governance, according to Institutional Shareholder Services.
While investors rarely oppose a board on whether to split the titles, Kess said the outcome at Bank of America may be closer than usual, because last year’s move overturned the wishes they expressed in 2009 and the stock is now lagging behind other banks.
Still, most of the lender’s 10 biggest investors, holders of about one-quarter of Bank of America stock mainly through retail mutual funds, are clear on the separation issue: A CEO- chairman is acceptable if there is an independent director who can plausibly balance management’s power. Jack Bovender has served as Bank of America’s lead independent director since October.
“We generally consider the designation of a lead independent director as an acceptable alternative to an independent chair” if the director can call meetings and set agendas, BlackRock said in a February proxy-voting guideline.
In its guideline, fund company Dodge & Cox goes further, saying management is best able to decide its governance structure and that “splitting the positions of chief executive officer and chairman may not be in the best interests of the company or its shareholders.”
Fidelity Investments says it “will generally vote against shareholder proposals calling for or recommending the appointment of a non-executive or independent chairperson.” Together, Dodge & Cox and Fidelity held about 4.9 percent of the bank’s stock at midyear.
Four of Bank of America’s five largest stockholders combine the chairman and CEO roles in their own governance. And among the nation’s 10 biggest banks, only Citigroup Inc. separates the titles.
The tendency of mutual-fund firms to support management explains why proposals requiring independent chairmen rarely succeed. Just 3.2 percent of 62 such votes passed this year, according to a Simpson Thacher analysis of companies in the Russell 3000 Index. Plans to split the jobs usually get about a third of votes.
Bank of America, the second-largest U.S. bank by assets, has slid 10 percent this year in New York trading. While the stock has climbed 6.5 percent since Moynihan took over at the start of 2010, that trails the 67 percent gain in the broader KBW Bank Index.
“I don’t think this is an ordinary vote,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “This a case where shareholders spoke, required that they split the roles, and then they went back the other way.”