Questions for BofA board: Shareholders, meeting in Charlotte Wednesday, are expected to grill directors about bank’s prospects. [The Charlotte Observer, N.C.]
Apr. 26--Bank of America has made big changes to appease the shareholders who showed up mad at last year's annual meeting: There's a new boss and a remade board, the bank has repaid its government loans, and the stock price has recovered from single-digit lows.
But don't expect this year's meeting, in Charlotte on Wednesday, to be exactly cordial. Some proxy-advisory firms are telling investors to vote against a handful of the 13 directors.
Other shareholders say they're still waiting for the new board -- which will also be getting a new chairman -- to prove that it's going to stand up for them. The slashed dividend payout will continue to be a sore point. And unions and other activist groups still plan to show up and protest foreclosures, banker pay and other perennial points of contention.
Charles Elson, an expert on corporate governance, said the directors owe shareholders an explanation of how they picked Brian Moynihan, a bank insider, as the new CEO. They should also address the bank's future business plan, given how new regulations are making consumer banking less profitable.
Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said he would like for each director to spend a minute or two addressing those questions at the annual meeting.
"We had to elect them, so we should hear from them," said Elson, who is also a shareholder. "I don't think they're going to. But I think that's appropriate given what's happened."
Michael Pryce-Jones, at shareholder-advisory firm PROXY Governance, said that the board remains "on probation." Its key job right now, he said, is "closing the credibility gap" wrenched open by the bank's Merrill Lynch deal in 2009. Some investors say they think they were misled into voting for the deal, though the bank backs Merrill and points out that it has added to earnings.
Another advisory firm, RiskMetrics Group, said the board can rebuild trust by continuing to rotate old-timers off the roster.
Last year's meeting was punctuated by "vote no" campaigns against CEO Ken Lewis and many of the other 17 directors. Since then, 12 directors have stepped down or are about to. The bank, under government influence, also named six new outsiders to the board.
William Atwood, executive director of the Illinois State Board of Investment, voted his fund's shares against all the board members last year, but said he is taking a "wait and see" approach with the new leadership.
"We're letting the dust settle a little bit," Atwood said. "They've made some changes to the board, they've separated the chairman and CEO. At some point you've got to say, 'Let's see if it works.'"
Ray Groth, co-founder of the Directors' Education Institute at Duke University, said the quality of the board has "taken a big step forward."
"Not that there aren't one or two more who maybe should go, but I think stockholders should feel pretty good about the board right now," Groth said. "The only thing troublesome to me is that there's nobody from the Carolinas on it."
The bank says that Moynihan looks forward to hearing from shareholders at Wednesday's meeting. Here's a preview of what else to expect:
The directors: Thirteen directors are standing for re-election, and a few are facing some criticism. PROXY Governance is telling clients to vote against Chad Gifford. They cite how he approved the Merrill deal even though he expressed private reservations about it, which has jeopardized his credibility, Pryce-Jones said.
Glass Lewis & Co. is telling clients to vote against Virgis Colbert and Charles Rossotti because they joined from the Merrill board, and were directors there when the bank rushed out bonuses in 2008 and took on deep exposure to subprime mortgages.
It's unlikely that any of the directors will be voted off. That's partly because the structure of corporate votes makes it difficult to do so. But shareholder activists say that boards should take heed if a director gets a "no" vote of even 10 or 20 percent.
At last year's meeting, six directors received "no" votes of more than 20 percent. Four of them are now gone. (The two that remain are Frank Bramble and Monica Lozano.)
A new chairman: Walter Massey is stepping down after reaching the mandatory retirement age of 72. He has been chairman since last year, when Lewis lost the job because shareholders passed a rule requiring the board to be run by an independent chairman.
Board members will choose a new chairman from among themselves, but they cannot elect Moynihan or Gifford because of the rule passed last year. (Gifford is not considered independent because he was CEO of FleetBoston, which Bank of America bought in 2004, and because of the compensation he was getting under his retirement agreement. The agreement expired this year but was worth nearly $1.8 million last year, including nearly $1 million that the bank spent to fly Gifford on private planes, and another $293,000 to help him offset the accompanying taxes.)
That means there are 11 candidates for chairman, six of whom are new to the board since last year.
Jon Finger, whose Houston-based investment firm led a campaign against Lewis last year, said he'd prefer that one of the new directors be chairman, because he doesn't want anyone who was involved with the Merrill deal to be in charge of the board.
He and others criticized the choice of Massey last year, saying he was independent in name only because he'd been on the board for 11 years by then.
Finger said he'd like to see Chad Holliday Jr., Susan Bies or D. Paul Jones elected chairman. They have the right backgrounds, are young enough that they can stay on the board for multiple years, and have the time to commit to the job, Finger said.
The share price: The bank is asking shareholders for permission to increase the number of authorized shares, which can be used for raising capital, making acquisitions, and other "future needs and opportunities." But the increases also dilute the value of current shares, because profits have to be spread among more units, and shareholders already approved one increase this year.
The dividend and the share price will also probably be grounds for discord. The dividend payout is at one penny, compared to 64 cents in 2008. And the stock, which closed at $18.43 on Friday, is still just a shadow of its $50-plus peaks in 2007. (Though it's greatly improved from last year, when it dipped as low as about $3.)
David Schmidt, at corporate governance firm James F. Reda & Associates, said shareholders need to realize that the stock may never return to the 2007 levels.
"A lot of those earnings were built on a house of cards," Schmidt said. "(And) there were lots of fees being earned that just aren't going to happen again."
On a call with reporters this month, Moynihan said he is "not unmindful of the shareholders."
"We're used to a different stock price and we're doing everything we can to make that better," he said.
Special meetings: Shareholders will vote on a proposal that would allow them to call special meetings if they hold 10 percent or more of the outstanding shares. They would be allowed to pool their holdings to reach the 10 percent threshold.
This proposal nearly passed last year, with 49.35 percent support. It is backed by Glass Lewis, RiskMetrics, and another advisory firm called Egan-Jones Ratings, who say it would make the board more accountable to shareholders.
Bank of America says the proposal is unnecessary, because the bank already allows shareholders this privilege if they hold 25 percent of the stock.
The bank adds that it is already "open to communication with our significant stockholders outside of the framework of an annual or special meeting."
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