Bank of America Corp (BAC.N) shareholders voted to allow Chief Executive Brian Moynihan to remain as chairman, handing a victory to a CEO who has been slowly turning the bank around since the financial crisis.
A group of shareholders, mainly public pension plans, had campaigned to strip Moynihan of his chairman title, arguing that the CEO needed more oversight from an independent overseer on the board. They were upset that the bank had unilaterally changed its bylaws last year to allow Moynihan to hold both roles, after investors had voted in 2009 to separate them.
But mutual funds and institutional investors, which are among the bank’s top shareholders, largely did not support the campaign, according to a person familiar with the matter who was not authorized to speak publicly about the vote. These investors tend to prefer talking directly to management about governance matters, instead of agitating externally.
One of those investors, State Street Global Advisors, told Reuters that it wanted to allow Bank of America’s board “the flexibility to choose their own leadership structure.”
The more vocal investors that campaigned for change, including California Public Employees’ Retirement System and the California State Teachers’ Retirement System, held smaller stakes.
They managed to rally 37 percent of votes cast, a sizeable minority that is larger than average for such votes.
“Shareholders sent a message to the board that they are not happy,” said Mike Mayo, a veteran banking analyst at CLSA Americas.
Jack Bovender, the bank’s lead independent director, acknowledged investor discontent, and promised to do a better job reaching out to investors.
The meeting to discuss Moynihan’s fate was held in a sparsely filled auditorium in downtown Charlotte, North Carolina and lasted for less than 20 minutes.
The bank’s shares fell 1.1 percent, performing better than the KBW bank stock index, which fell 1.5 percent. .BKX
MIXED TRACK RECORD
Moynihan’s record at Bank of America, the second biggest U.S. bank by assets, has been mixed. He has cleaned up most of its crisis era mistakes, paying more than $70 billion to settle lawsuits and other claims. He has slashed costs during his nearly six years as CEO.
But the bank’s shares and profits this year have underperformed those of rivals. It will be hard for Bank of America and other U.S. banks to boost profits much more than they have as long as the Federal Reserve refrains from boosting interest rates. Its next policy meeting is in October.
Moynihan was also tripped up by the Fed in March, when the central bank said Bank of America does not do enough to evaluate how it might suffer during times of market stress. The Fed asked the bank to resubmit its plan for paying dividends and buying back shares by the end of September.
Analysts believe the Fed’s comments played a role in the bank’s decision in July to replace its chief financial officer.
AN UPHILL BATTLE
Shareholder attempts to strip CEOs of their chairman titles typically fail, garnering an average of 31 percent of votes, according to the ISS Voting Analytics database.
The 63 percent of votes favoring the bank is in line with the voting when JPMorgan Chase & Co (JPM.N) shareholders sought to strip CEO Jamie Dimon of his chairman title. Dimon won 60 percent of votes in 2012 and 68 percent the next year.
But even if shareholders accept having one person as chairman and CEO, more company boards are opting to separate those roles. Twenty-eight percent of the boards of companies in the Standard & Poor’s 500 index had independent chairmen in 2014, up from 9 percent in 2004, according to a report from executive search firm Spencer Stuart. (See graphic:reut.rs/1OOfhxK)
Many of Bank of America’s 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. Lewis’s mistakes spurred investors to successfully strip his chairman title in a vote at the bank’s 2009 annual meeting.
The bank initially did not respond to investor complaints about making Moynihan chairman, but days before its 2015 annual meeting, Bank of America said it would allow investors to vote on the matter sometime over the next year.
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 (AGTHX.O) and some index funds sponsored by Fidelity Investments.
Technically, Bank of America investors voted on whether to approve bylaw changes the bank made last year to give Moynihan the chairman title when previous chair Charles Holliday stepped down.