Win or lose, Bank of America vote shows new shareholder muscle


A group of shareholders is looking to strip Bank of America Chief Executive Brian Moynihan of his chairman title on Tuesday in an investor vote and whether they fail or succeed, they have notched a victory just by getting the bank to hold a special meeting on the matter.

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.

Bank of America CEO Brian Moynihan.
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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's annual meetings in 2013 and 2012 failed to strip CEO Jamie Dimon of his chairman title, just like votes at Wells Fargo 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 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's and JPMorgan Chase'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 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.

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 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.