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 Tuesday's vote is the culmination of months' of work by investors
including the California Public Employees' Retirement System, the
largest public pension system in America, after the bank's board
said last October that it was giving CEO Moynihan the title of
chairman as well.
CalPERS, the California State Teachers' Retirement System and other
major public pension plans are troubled that the bank decided to
ignore a 2009 shareholder vote to separate the chairman and CEO
positions, meant to give the CEO more independent oversight.
The pension plans rallied support, though the bank initially ignored
them. But days before Bank of America's annual meeting, it reversed
course and said it would let shareholders vote on the matter
sometime over the next year. In August, it said it would hold a
special meeting, usually reserved for urgent matters like whether to
sell the company.
The bank's unusual decision to hold the special meeting signals that
company leaders can no longer expect investors to rubber-stamp their
decisions, said Anne Simpson, global governance director for CalPERS.
"I can't remember an occasion where a company has called a special
meeting to address a governance issue. That's a sign of how far we
have come," Simpson told Reuters in an interview.
The vote is expected to be close and the bank says it will honor the
outcome. CalPERS hopes to rally support from a broad array of
investors – not just public pensions and other traditionally vocal
shareholders – who have been paying much closer attention to
governance matters since the financial crisis, Simpson said. It is
hard to ignore so many investors, she added.
Asked about Simpson's comments, bank spokesman Lawrence Grayson said
"The board and management have engaged extensively with shareholders
and recognize that there are varying views on board leadership
models, which is why the board committed to holding a vote."
Much is at stake in the outcome of the vote. If Moynihan loses, it
could mark a key point in the demise of the imperial CEO, who runs
his or her company with essentially a free hand.
Similar votes at JPMorgan Chase & Co's annual meetings in 2013 and
2012 failed to strip CEO Jamie Dimon of his chairman title, just
like votes at Wells Fargo & Co from 2005 through 2007 fell short of
stripping CEO Richard Kovacevich of his additional role as chairman.
Typically, chief executives lose chairman titles as part of broader
campaigns by activist investors to change a company. In 2013 for
example, oil and gas company Hess Corp relieved CEO John Hess of his
chairman duties to appease activist hedge fund Elliott Management,
which was campaigning to break up the company.
Investors may have reason to be upset with Moynihan's performance.
The bank's shares have lagged major rivals, including Citigroup
Inc's and JPMorgan Chase & Co's, for the nearly six years that
Moynihan has been chief executive, and over the last year.
Profits have been much lower than those rivals, too, in large part
because of Bank of America having paid out more than $70 billion to
settle crisis-linked claims and suits.
Many of these difficulties stem from decisions made by Moynihan's
predecessor, Ken Lewis.
His ill-timed acquisitions, including buying subprime mortgage
lender Countrywide Financial Corp at the height of the housing
crisis, forced the bank to seek at least two government rescues.
Shareholders decided in 2009 that he needed better oversight, and
voted to separate his duties.
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KNOWING 1,000 TIMES MORE
Some executives and investors believe that activists are foolish to
focus on splitting Moynihan's roles now.
Executives have better information about what is happening in a
company, and do not necessarily benefit from better oversight,
former Wells Fargo CEO Richard Kovacevich told Reuters in an
interview last week.
"If I don’t know 1,000 times more than any stockholder what's best
for Wells Fargo, I should be fired," he added.
Still, independent chairmen are becoming more common, according to
executive search firm Spencer Stuart. Twenty-eight percent of S&P
500 boards had independent chairmen in 2014, up from nine percent in
2004, a report from the recruiter states.
The financial crisis spurred some investors to pay closer attention
to management. So has the rise of passive investing, said Boston
University law professor Cornelius Hurley, who studies governance
matters. Index investors cannot just sell shares of a company they
dislike, forcing them instead to engage more with company managers
he said.
Public pension funds have long been more vocal about governance
matters, but investors like BlackRock Inc and Vanguard Group, the
top two U.S. asset managers, have lately grown much more publicly
outspoken about the companies in which they invest. For a long time,
they would only press management behind the scenes.
"The sleeping giants of Wall Street are stirring," CalPERS' Simpson
said, referring to big investors. BlackRock and Vanguard declined to
comment for this story.
Signaling their discontent, at Bank of America's annual meeting on
May 6, various mainstream mutual funds cast unusual votes "against"
directors on the bank's corporate governance committee, recent
securities filings show. These include American Funds' Growth Fund
of America and some index funds sponsored by Fidelity Investments.
Technically, Bank of America investors will vote on whether to
approve bylaw changes the bank made last year to give Moynihan the
chairman title when previous chair Charles Holliday stepped down.
The bank has said it will return to its previous structure of having
an independent chair if it loses the vote.
(Reporting by Ross Kerber in Boston and Dan Freed in New York.;
Editing by Daniel Wilchins and Nick Zieminski)
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