Bank of America’s decision last year to name CEO Brian Moynihan its chairman culminates Tuesday when shareholders will vote in Charlotte on whether to ratify the controversial move.
The vote is widely expected to be close. And regardless of the outcome, this much is clear: The debate over Moynihan’s dual role has exposed broader discontent among shareholders that the bank will have to address no matter which way the vote goes.
“It doesn’t really matter if they win or lose, they still lose,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “You’ve created huge bad feeling for no good reason.”
The bank didn’t seek shareholder approval before it changed its bylaws last fall to eliminate a requirement for an independent chairman – a surprise move that handed the title to Moynihan, CEO since 2010.
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In recent weeks major pension funds across the country have announced plans to vote against the recombination, saying the bank needs more independent oversight, not less.
On the other side: Famed investor Warren Buffett and former U.S. Rep. Barney Frank are among those lending support to the bank’s fight.
But the lender’s largest investors, whose big stakes carry big influence, have remained silent on their plans.
Reflecting the potential closeness of the vote, the bank has stepped up its talks with major investors in recent weeks. Lead independent director Jack Bovender and two vice chairmen, Anne Finucane and Gary Lynch, are spearheading efforts to meet with large investors around the world, a bank spokesman said. Those meetings have increased in the last month.
Corporate America watching
The result of the vote may resonate beyond the Charlotte bank. Some analysts see it as a potential bellwether of investor sentiment about board oversight, and they say corporate America will be watching the outcome.
“They’re going to be watching to see if there’s some new shareholder activism that is clearly demonstrating a preference to see the chairman and the CEO roles separate,” independent bank analyst Nancy Bush said. “It has the potential to indicate a shift in the thinking of investors.”
Bank of America had kept the roles divided since 2009, when shareholders angered by a slashed dividend and sunken stock price narrowly passed a proposal to split the positions. Then-CEO Ken Lewis was stripped of the chairmanship as a result.
Since the bank awarded Moynihan the chairman’s title last October, Citigroup has been the only lender among the top five U.S. banks to have separate people in the two roles.
A key function for public company boards is overseeing company management on behalf of shareholders. Opponents of combining CEO and chairman roles say it creates a potential conflict of interest and weakens independent oversight of management. Supporters of combined roles argue that boards can benefit from a chairman with deep, first-hand knowledge of the company.
Frank, the former Massachusetts congressman who co-authored landmark legislation to regulate banks, told the Observer last week he disagrees “with the notion that as general principle there should be a separation of the two jobs.” Frank said the bank asked him if he would share that view with the media, after he mentioned his position to the lender a few weeks ago.
“As to whether or not I would vote on the separation or not, I’m not a shareholder,” said Frank, a Democrat who formerly chaired the House Financial Services Committee.
But, Frank said, he has a “very high opinion of Brian” and has “been generally impressed with the way he has handled his legacy problems.”
Among the opponents: two prominent proxy advisory firms and the California Public Employees’ Retirement System and the California State Teachers’ Retirement System – the nation's two biggest public pension funds.
Over the past two weeks, Calstrs and Calpers have contacted investors who hold roughly 75 percent of the bank’s shares to lobby them over the issue, Calpers said.
Last week, New York City’s $165 billion pension funds joined those opposing the move. The funds will vote 25.2 million Bank of America shares to separate the roles.
Some of those opposing the move say their discontent goes beyond Moynihan’s dual role to broader concerns about the bank’s board.
“It’s bigger than just the chairman/CEO issue,” said Aeisha Mastagni, portfolio manager for the California State Teachers’ Retirement System, which last week voted 29.1 million Bank of America shares against the recombination.
“This board needs to hold Moynihan accountable for the performance of this company going forward, and it doesn’t appear that they’ve been doing that the last few years,” she said. “They’ve essentially rewarded him with the chairmanship for what we would consider severe under-performance.”
Despite the controversy over the chairman issue, this summer a majority of the bank’s board members voted to give themselves a roughly $36,000 raise in the form of restricted stock. The bank noted it was the first time the board increased the value of its directors’ annual restricted stock awards in nine years.
“It’s another example of them just not being in tune with their shareholders and not being in tune with how poorly that looked,” Mastagni said.
In defending the recombination, the bank has argued that most companies in the S&P 500 are not required by their bylaws to have a separate chairman. The lender has also noted that the earlier shareholder vote “reflected concerns particular to the Bank of America of 2009, in the midst of the financial crisis.”
In naming Moynihan chairman, Bank of America also created a lead independent director, a position it gave to Jack Bovender, a board member since 2012. The bank says that position helps with the board’s independent oversight of the company.
Earlier this year, Moynihan said he had called Bovender to say the bank should let investors weigh in on the recombination and to “clear the air.” Two days later, the bank announced it would hold the vote.
Investors will gather for the meeting at 10 a.m. Tuesday at 1 Bank of America Center, an uptown office tower one block from the lender’s headquarters.
‘Tough to vote down’
At least one Bank of America critic thinks opponents of the recombination may face an uphill battle.
“These types of proposals are tough to vote down,” said analyst Mike Mayo, who has a sell rating on the stock. “It’s going to be tough to vote this ‘no,’ but we think the vote will be closer than expected and in so doing likely to send a message to the board.”
Even if shareholders vote down the recombination, the bank will still have damage to repair, said Elson, of the University of Delaware.
“It’s a long, hard road because once you’ve broken confidence or trust it’s very hard to earn it back,” said Elson, owner of about 66,000 Bank of America shares. “It’s the old line: a reputation is so hard to gain, so easy to lose.”
Charlotte businessman C.D. “Dick” Spangler is among shareholders who have already cast their votes in favor of Moynihan remaining chairman. Earlier this month, Spangler said he’s satisfied with the job Moynihan has done in helping the lender recover from the financial crisis. If investors don’t like how Moynihan is running the bank, “they could sell their shares,” Spangler said.
Buffett expressed a similar view, telling CNBC that Moynihan has turned around a company “that was just a terrible mess.”
The Vanguard Group, the largest single shareholder in Bank of America, does not disclose how it votes ahead of shareholders meetings, said Glenn Booraem, head of corporate governance for Vanguard’s mutual funds, which hold shares in Bank of America and other companies.
Vanguard holds about 565 million shares in the bank, or roughly 5 percent of the lender’s outstanding shares.
“Our general view is that there should be an element of independent leadership on the board,” Booraem said, speaking broadly about public companies.
“Whether that leadership is embodied in an independent chairman or lead independent director we think should largely be up to the board. What’s important to us is independence. The form that independence takes is something we’ve typically left to boards to determine.”