By Christina Rexrode
When Bank of America Corp.'s board decided last fall to
disregard a binding shareholder vote and give the chairman job to
Chief Executive Brian Moynihan, it painted the move as a smooth and
natural progression of his career. It hasn't turned out that
way.
The bank on Monday bowed to pressure and said it would give
shareholders the chance to vote on the board's October
decision.
The unexpected announcement came two days before the bank's
annual meeting and after some shareholders expressed unhappiness
about how the board handled the move. To elevate Mr. Moynihan,
board members overrode a 2009 rule passed by shareholders during
the depths of the financial crisis requiring that the two jobs be
held by separate people. The board also changed the bank's bylaws
to do so, which aggravated big pension funds and other
institutional investors who weren't consulted in advance.
In recent days, two proxy-advisory firms cited the decision as
reason for shareholders to vote against the re-election of Tom May,
a longtime board member seen as a close ally of Mr. Moynihan. Mr.
May is chairman of the board's corporate governance committee,
which paved the way for Mr. Moynihan to get the chairmanship.
In a Monday letter to shareholders, signed by Mr. Moynihan and
the board's lead independent director, Jack Bovender, the bank said
"a number of stockholders" had complained about the process.
"We appreciate the candor with which stockholders have shared
their insights, both in support of the decision and in expressing
reservations about the process," Messrs. Bovender and Moynihan
wrote.
One of the pension funds that initially complained about the
issue was the California State Teachers' Retirement System, or
Calstrs, the second-largest pension fund in the U.S. by assets and
owner of 28 million Bank of America shares. Anne Sheehan, the
group's director of corporate governance, said she was glad to see
the bank reverse its stance.
"They resisted and went through all these gyrations of why it
wasn't necessary" after the fund initially disapproved in the fall,
Ms. Sheehan said. "But clearly they have seen the error of their
ways....They should have done it this year but better late than
never."
The practical effect of the bank's move isn't clear. The vote
won't be on the ballot at Bank of America's annual meeting
Wednesday in Charlotte, N.C. The board said only that it would hold
the vote "no later than" next year's annual meeting. The bank also
didn't specify whether such a vote would be binding, and a
spokesman said it was too early to say what the language would be
in the resolution.
Bank of America's concession to shareholder concerns landed 48
hours before the opening of the annual meeting, in which Mr.
Moynihan and other bank officials are likely to be peppered with
questions about the firm's uneven performance of late.
Mr. Moynihan became CEO more than five years ago and has spent
the bulk of his tenure working through a mountain of litigation and
bad loans that he inherited. But now that the panic of crisis-era
demands is over, Mr. Moynihan is under pressure to show that he can
steer the bank toward growth after years of cutting costs.
The bank's first-quarter earnings were far improved from the
year before, thanks to a huge drop in legal fees, but missed
analysts' expectations. The bank's shares have dropped 8.1% this
year, trailing the other biggest U.S. banks, such as J.P. Morgan
Chase & Co. and Wells Fargo & Co., which are both up in
2015.
On Monday, Bank of America's shares gained 33 cents, or 2.1%, to
$16.44, in 4 p.m. trading.
The controversy over the board's move has been "an unfortunate
distraction" in recent months, said Jerry Senser, CEO and chief
investment officer of Institutional Capital, a Chicago firm that
owned 39 million shares as of Dec. 31, according to recent
regulatory filings. "We're looking for a board to be a little more
forward thinking as opposed to being reactionary," said Rob Stoll,
Institutional Capital's executive vice president.
Of the nation's 100 biggest banks, 44 have a separate chairman
and CEO, according to CLSA bank analyst Mike Mayo. About 47% of
S&P 500 companies separate the roles, according to ISS
QuickScore.
The bank has previously described Mr. Moynihan's elevation to
chairman as a "return to normal," noting that the CEOs of most of
the biggest U.S. banks hold the chairman job. The bank also has
noted that the 2009 shareholder rule was passed under a different
CEO and when the bank was in the depths of the financial
crisis.
Many shareholders who expressed displeasure to the bank were
concerned largely about the board's process in making the change,
and not about Mr. Moynihan's leadership, according to interviews
with shareholders.
Several shareholder groups, including the large pension-fund
investors, expressed displeasure in the weeks and months that
followed the board's decision.
But their protests gained momentum recently when proxy-advisory
firms Institutional Shareholder Services Inc. and Glass, Lewis
& Co. recommended that shareholders vote against re-electing
Mr. May. ISS also recommended voting against the three other board
members on the corporate-governance committee. Like Mr. Moynihan,
Mr. May came to the bank when it bought FleetBoston Financial Corp.
in 2004.
"If there is a lesson for [Bank of America] shareholders, it is
that binding shareholder votes are meaningless in the face of a
board that chooses not to abide by them," ISS wrote in its
report.
ISS on Monday told investors that it still recommended that
shareholders vote against Mr. May and the other
corporate-governance-committee members.
Glass Lewis also still recommended a vote against Mr. May,
citing "the timing of the announcement and lack of specific
information about the nature of the shareholder ratification."
Write to Christina Rexrode at christina.rexrode@wsj.com
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