Paul Hodgson: Bank of America’s shareholder outreach

A comment on an article I wrote ahead of the recent Bank of America special AGM, at which CEO Brian Moynihan’s role as Chairman was set for a shareholder vote, shows the lengths the company went to in order to get a favourable outcome in what was a controversial occasion.
The person noted: “I found this interesting as BAC [Bank of America] called me wanting me to vote with management. I had sold my BAC shares about a month ago so I declined to vote either way.” The comment came from a retail investor who held only a few shares.
I don’t think I’ve ever heard of a bank calling its shareholders, except its large institutional shareholders, to persuade them to vote with the board.
But I wasn’t the only one to find that this level of outreach was going on. A piece in Business Insider touted the experience of BofA shareholder Joel West, owner of 512 shares, who said he had been called by the bank’s proxy advisor which asked him to vote with management on the “leadership structure” vote without clearly explaining what the vote was about. Business Insider then called Georgeson – the advisor in question – and received the response that it had indeed been calling shareholders and that the “practice is not unusual for the firm”. I find that difficult to believe in the case of retail shareholders.
The bank did call its institutional shareholders as well. The Wall Street Journal reported that CEO Bruce Moynihan had been on the phone into the night with Korea Investment Corp, one of the bank’s 20 largest investors, to try to persuade it to vote with management, unsuccessfully as it turns out.
Finally, online journal Agenda Week noted that outreach by lead director Jack Bovender was successful in persuading the bank’s second largest investor, State Street, to vote with management.

The fund was initially going to vote to keep the jobs separate. Even had he been unsuccessful, it wouldn’t have changed the result, as State Street owns only just over 4 per cent, less than the margin of 13 per cent.
In the announcement of the special meeting, despite the vote being non-binding, the bank did promise to split the roles again if a majority of votes were cast against the new leadership structure, so winning the vote was clearly very important for it. This also led to a flurry of what you might call special pleading filings. This one was littered with fancy charts and tables about how having a combined chairman and CEO was better for the bank – though another comment on my earlier article showed a shareholder unconvinced that they had made any kind of believable case.This comment ended with the following statement: “Bottom-line for my vote is transparency, respect, and trust, of which BAC has earned a NO trifecta from me, at least on this particular issue.”
A final special pleading filing was just a transcript of a few lines of a television interview with Warren Buffett indicating that he thought it was fine if Moynihan remained chair.
But all this shareholder outreach and special filings cost money, shareholders’ money, a lot of it if every retail investor was contacted, including some who had already sold their shares. Was that a proper use of that money?
The bank’s earlier proxy statement noted that the decision to recombine the roles “followed months of thorough deliberation by our Corporate Governance Committee and Board” and that it was the result of an “orderly, well-researched, and probing independent review and deliberation”.
Fortunately, the bank does not pay meeting fees to its non-executive directors, just annual stock and cash retainers, so all this deliberation did not cost shareholders additional money on top of the outreach. The review covered stockholder voting policies and practices, and “empirical studies regarding performance of companies having executive and independent board chairs”; studies which the review concluded were inconclusive. It is true that there are probably as many academic studies saying dual roles improve performance as there are studies saying combined roles improve performance. In addition, the bank claimed that the shareholder vote of 2009 calling for it to separate the roles was the result of dissatisfaction with the then board and its performance.

But since 80 per cent of its current directors were not serving in 2009, it argued, and there have been eight new directors in last three years, this was no longer the same board. While this is true, comments at the special meeting showed that there was clear dissatisfaction even with the current board.
But the section of the proxy statement that baffled me the most was the section headed: “Duties of the lead independent director or independent chairman”. This explained very carefully that the new lead director was “tasked with duties consistent with those of an independent Chairman”. If this is indeed the case – and a list of the changes to the bylaws that were unilaterally adopted by the bank almost a year ago indicates that it is – then what was so important about changing the independent chairman’s title to lead director? That’s a lot of money spent on a name change.

Paul Hodgson is an independent governance analyst.