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Tone deaf

8 September 2015 By Richard Beales

Bank of America’s hapless directors have only themselves to blame. They’re in a corner having overridden in October last year a 2009 shareholder directive to separate the roles of chief executive and chairman. They gave CEO Brian Moynihan the chairman title too. Now that they’re finally holding a vote on Sept. 22, they could be forced to take it away.

The big-picture disappointment is that BofA squandered a chance to lead the way in governance. At a sprawling, $160 billion titan in a recently troubled and heavily scrutinized sector, there’s more than enough for a CEO to do without adding the duties of a chairman, both in terms of leading the board and potentially as an ambassador with investors, politicians, watchdogs and the public.

Corporate America is slowly getting this message. According to the Spencer Stuart Board Index 2014, 47 percent of S&P 500 Index companies have split the roles – up from 37 percent five years earlier – while 28 percent of boards are chaired by someone fully independent by stock exchange definitions, up from 9 percent in 2004. BofA is moving in the wrong direction.

The more specific failure relates to the way directors reversed a mandate that had come from shareholders. The Spencer Stuart survey showed only 3 percent of S&P 500 boards having a formal policy separating the chairman and CEO roles. But BofA’s owners had explicitly required such a split – and they mostly weren’t consulted even informally about the change in October.

That’s why the board now has a rebellion on its hands, with several big shareholders along with proxy advisers Institutional Shareholder Services and Glass Lewis arguing that investors should vote against the company and for the reinstatement of the formal separation of the two jobs.

BofA argues that directors should have the discretion to decide and that board composition and governance practices have been revamped since 2009. But even sympathetic shareholders will now have to vote against the board to register disapproval at being cut out of the discussion.

If directors including governance committee members Sharon Allen, Frank Bramble, Thomas May and Lionel Nowell had only been less aloof and sought a vote in the first place, they wouldn’t now face the prospect of having to strip Moynihan of one of his titles. If that does happen, at least they should recognize that it’s because they screwed up – not because he did.


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