Bank of America critics consider next moves

Bank of America scored a victory this week when shareholders voted to approve CEO Brian Moynihan remaining chairman of the Charlotte-based lender. But work remains for the bank to satisfy other shareholders unhappy with the lender’s performance and the leadership of its board.

At a special shareholders meeting in Charlotte on Tuesday, Moynihan comfortably retained his chairman post, an arrangement approved by roughly 63 percent of voting investors. Since then, shareholders who opposed Moynihan holding both titles aren’t letting up on their criticisms of the lender or their calls for changes to the bank’s board.

“They’re not out of the penalty box,” said Aeisha Mastagni, portfolio manager for the California State Teachers’ Retirement System (CalSTRS), which opposed the bank’s decision last fall to name Moynihan chairman and eliminate a requirement for the position to be independent. CalSTRS and other big investors said they have not ruled out submitting shareholder proposals to push for governance changes.

While experts said further efforts by shareholders to alter the bank’s governance could face an uphill battle, this much is clear: Ongoing complaints from shareholders show the bank will continue to contend with investor unrest.

Board members Tom May and Charles Gifford are two names shareholders have mentioned when calling for changes to the board’s leadership.

May leads the bank’s corporate governance committee, which recommended last year that the board make Moynihan chairman. May holds the chairman and CEO titles at New England utility company Eversource Energy.

Gifford, 72, is the board’s oldest director and has served since 2004.

Both May and Gifford were in place during the bank’s much-criticized 2008 acquisition of Countrywide Financial Corp. Bank of America has paid billions of dollars in legal expenses over Countrywide’s mortgage dealings, costs that have been a drag on earnings.

Michael Pryce-Jones, corporate governance director at CtW Investment Group, which advocates for labor union pension funds that own Bank of America shares, said his organization is calling for May and Gifford to step down or not be renominated next year.

Pryce-Jones would also like to see the other two members in place at the time of the Countrywide deal, Frank Bramble and Monica Lozano, off the board. At a minimum, he is looking for the bank to craft a plan, by its next annual meeting in the spring, detailing a timeline for rotating Bramble and Lozano off.

If the bank doesn’t make changes to its board, CtW is considering launching a campaign to get other investors to oppose the re-election of board members, Pryce-Jones said.

“They need to make more of a qualitative change to this board than I think they realize,” he said. “Certainly, a vote-no campaign would be a good bet if the company hasn’t made significant changes.”

Some shareholders are also calling for more board members with financial expertise. According to a Bank of America securities filing this month, five of its board members including Moynihan have served as senior executives at financial institutions, higher than the average of 4.7 directors at its three closest peer companies.

Bank of America spokesman Lawrence Grayson declined to comment beyond remarks Moynihan and other bank executives gave to reporters after Tuesday’s special shareholders meeting. Moynihan indicated that the bank has no plans to make immediate changes to its board, which he called “very strong.”

Bank executives on Tuesday pledged to make contact with shareholders more frequently. Executives admitted the bank erred last fall when it failed to consult shareholders before removing the requirement for an independent chairman and giving Moynihan the title.

This year, proposals to split CEO and chairman roles have received about 30 percent support on average at large U.S. companies, according to ISS Voting Analytics. At Bank of America, roughly 37 percent voted for the roles to be separated.

“Yes, they won the vote,” said Mastagni of CalSTRS. “But all of the reasons that CalSTRS voted against the bylaws change are still there, and those are things that can only be rectified over time.”

CalSTRS, the second-largest pension fund in the U.S., voted 29.1 million Bank of America shares in opposition to Moynihan staying chairman. The figure is less than 1 percent of the bank’s outstanding shares.

Mastagni said CalSTRS remains frustrated with the bank’s share price, which is well below pre-recession levels, while shares of some of its peers have rebounded. Bank of America shares closed Friday at $15.89, up more than 2 percent.

So far this year, Bank of America’s share price is down about 12 percent, compared with a roughly 6 percent drop in the KBW Bank Index, which tracks the share performance of 24 large U.S. lenders.

Mastagni said it’s too early to say how CalSTRS will vote for board members next year. CalSTRS is not currently considering submitting any shareholder proposals for the bank’s next annual meeting, but “I wouldn’t rule it out,” she said.

How much impact?

Opinions differ over how much impact shareholders who remain upset with the bank could have.

At least one person thinks Tuesday’s vote in favor of Moynihan remaining chairman could deter some investors from trying to make other changes to the bank’s board.

“A lot of times it’s enough to push these more activist shareholders on to the next corporation,” said Marty Mosby, an analyst with Tennessee-based Vining Sparks.

After winning Tuesday’s vote, Bank of America isn’t likely to bow to lingering investor pressure to remove certain board members, Mosby said.

“I don’t think given the victory they had ... that they’re going to feel additional pressure to make changes that they weren’t already going to make.”

Others believe the bank would be wise not to ignore pension funds and other large shareholders unhappy with the lender’s governance.

“The investors could always answer by selling their stock,” said Ken Thomas, a Miami-based bank consultant and member of the American Association of Bank Directors’ board of advisers. “It should be motivation to show how we really do have good corporate governance with the dual role.”

‘A bit too laid back’

In any case, the bank’s critics have clearly gotten the lender’s attention.

The Rev. Seamus Finn said his organization heard directly from Anne Finucane, the bank’s global chief strategy and marketing officer, as Finn’s group pushed last year for a shareholder resolution to give investors a vote on whether Moynihan should have been made chairman.

Finn’s group, the New York-based Interfaith Center on Corporate Responsibility, dropped its calls for the resolution after the bank agreed to produce a report on its business standards.

Until about a year ago, Bank of America would respond to a shareholder proposal from his group by having its legal department send a pro forma letter, Finn said.

“They sometimes maybe just were taking (communications with shareholders) a bit too laid back,” he said.

Finn said his organization will continue monitoring Bank of America’s board to make sure it is providing the right kind of oversight of Moynihan. Although he currently has no plans for it, Finn hasn’t ruled out out his organization one day resubmitting a proposal to split the chairman and CEO roles at Bank of America.

“I think it’s always possible,” he said. “Absolutely. This is not a forever position of support.”

This story was originally published September 26, 2015 at 4:00 AM with the headline "Bank of America critics consider next moves."